Correlation Between American Public and Kellogg

Can any of the company-specific risk be diversified away by investing in both American Public and Kellogg 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 Kellogg 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 Kellogg Company, you can compare the effects of market volatilities on American Public and Kellogg 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 Kellogg. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Public and Kellogg.

Diversification Opportunities for American Public and Kellogg

0.47

Correlation Coefficient

American Public  Kellogg

Very weak diversification

The 3 months correlation between American and Kellogg is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding American Public Education and Kellogg Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kellogg Company 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 Kellogg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kellogg Company has no effect on the direction of American Public i.e., American Public and Kellogg go up and down completely randomly.

Pair Corralation between American Public and Kellogg

Assuming the 90 days horizon American Public Education is expected to generate 5.19 times more return on investment than Kellogg. However, American Public is 5.19 times more volatile than Kellogg Company. It trades about 0.24 of its potential returns per unit of risk. Kellogg Company is currently generating about 0.16 per unit of risk. If you would invest  1,360  in American Public Education on October 26, 2024 and sell it today you would earn a total of  700.00  from holding American Public Education or generate 51.47% return on investment over 90 days.

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

American Public Education  vs.  Kellogg Company

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 fragile basic indicators, American Public reported solid returns over the last few months and may actually be approaching a breakup point.

Kellogg Company

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kellogg Company are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Kellogg is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with American Public and Kellogg

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

The idea behind American Public Education and Kellogg Company 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.