Correlation Between American Public and ARES MREAL

Can any of the company-specific risk be diversified away by investing in both American Public and ARES MREAL 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 American Public and ARES MREAL into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Public Education and ARES MREAL ESTDL 01, you can compare the effects of market volatilities on American Public and ARES MREAL 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 American Public with a short position of ARES MREAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Public and ARES MREAL.

Diversification Opportunities for American Public and ARES MREAL

0.36

Correlation Coefficient

American Public  ARES MREAL

Weak diversification

The 3 months correlation between American and ARES is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding American Public Education and ARES MREAL ESTDL 01 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARES MREAL ESTDL and American Public 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 American Public Education are associated (or correlated) with ARES MREAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARES MREAL ESTDL has no effect on the direction of American Public i.e., American Public and ARES MREAL go up and down completely randomly.

Pair Corralation between American Public and ARES MREAL

Assuming the 90 days horizon American Public Education is expected to generate 2.25 times more return on investment than ARES MREAL. However, American Public is 2.25 times more volatile than ARES MREAL ESTDL 01. It trades about 0.05 of its potential returns per unit of risk. ARES MREAL ESTDL 01 is currently generating about -0.03 per unit of risk. If you would invest  1,200  in American Public Education on October 27, 2024 and sell it today you would earn a total of  860.00  from holding American Public Education or generate 71.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

American Public Education  vs.  ARES MREAL ESTDL 01

American Public Education

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Public Education are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, American Public reported solid returns over the last few months and may actually be approaching a breakup point.

ARES MREAL ESTDL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ARES MREAL ESTDL 01 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ARES MREAL is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with American Public and ARES MREAL

The main advantage of trading using opposite American Public and ARES MREAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Public position performs unexpectedly, ARES MREAL 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 ARES MREAL will offset losses from the drop in ARES MREAL's long position.

The idea behind American Public Education and ARES MREAL ESTDL 01 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.