Correlation Between Inspired Entertainment and Aristocrat Leisure

Can any of the company-specific risk be diversified away by investing in both Inspired Entertainment and Aristocrat Leisure at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Inspired Entertainment and Aristocrat Leisure into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Inspired Entertainment and Aristocrat Leisure Limited, you can compare the effects of market volatilities on Inspired Entertainment and Aristocrat Leisure and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Inspired Entertainment with a short position of Aristocrat Leisure. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inspired Entertainment and Aristocrat Leisure.

Diversification Opportunities for Inspired Entertainment and Aristocrat Leisure

0.17

Correlation Coefficient

Inspired Entertainment  Aristocrat Leisure

Average diversification

The 3 months correlation between Inspired and Aristocrat is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Inspired Entertainment and Aristocrat Leisure Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aristocrat Leisure and Inspired Entertainment is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Inspired Entertainment are associated (or correlated) with Aristocrat Leisure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aristocrat Leisure has no effect on the direction of Inspired Entertainment i.e., Inspired Entertainment and Aristocrat Leisure go up and down completely randomly.

Pair Corralation between Inspired Entertainment and Aristocrat Leisure

Given the investment horizon of 90 days Inspired Entertainment is expected to generate 1.02 times more return on investment than Aristocrat Leisure. However, Inspired Entertainment is 1.02 times more volatile than Aristocrat Leisure Limited. It trades about -0.05 of its potential returns per unit of risk. Aristocrat Leisure Limited is currently generating about -0.12 per unit of risk. If you would invest  920.00  in Inspired Entertainment on January 24, 2024 and sell it today you would lose (32.00) from holding Inspired Entertainment or give up 3.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Inspired Entertainment  vs.  Aristocrat Leisure Limited

Inspired Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inspired Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Inspired Entertainment is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Aristocrat Leisure

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aristocrat Leisure Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Aristocrat Leisure is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Inspired Entertainment and Aristocrat Leisure

The main advantage of trading using opposite Inspired Entertainment and Aristocrat Leisure positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inspired Entertainment position performs unexpectedly, Aristocrat Leisure can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Aristocrat Leisure will offset losses from the drop in Aristocrat Leisure's long position.

The idea behind Inspired Entertainment and Aristocrat Leisure Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Transaction History module to view history of all your transactions and understand their impact on performance.