Correlation Between American Public and KENNAMETAL INC

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

Diversification Opportunities for American Public and KENNAMETAL INC

0.62

Correlation Coefficient

American Public  KENNAMETAL INC

Poor diversification

The 3 months correlation between American and KENNAMETAL is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding American Public Education and KENNAMETAL INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KENNAMETAL INC 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 KENNAMETAL INC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KENNAMETAL INC has no effect on the direction of American Public i.e., American Public and KENNAMETAL INC go up and down completely randomly.

Pair Corralation between American Public and KENNAMETAL INC

Assuming the 90 days horizon American Public Education is expected to generate 2.46 times more return on investment than KENNAMETAL INC. However, American Public is 2.46 times more volatile than KENNAMETAL INC. It trades about 0.07 of its potential returns per unit of risk. KENNAMETAL INC is currently generating about -0.7 per unit of risk. If you would invest  1,970  in American Public Education on October 9, 2024 and sell it today you would earn a total of  50.00  from holding American Public Education or generate 2.54% return on investment over 90 days.

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

American Public Education  vs.  KENNAMETAL INC

American Public Education

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Public Education are ranked lower than 21 (%) 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.

KENNAMETAL INC

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KENNAMETAL INC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, KENNAMETAL INC is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with American Public and KENNAMETAL INC

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

The idea behind American Public Education and KENNAMETAL INC 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.