Correlation Between AAP and Ubiquiti Networks

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

By analyzing existing cross correlation between AAP Inc and Ubiquiti Networks, you can compare the effects of market volatilities on AAP and Ubiquiti Networks 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 AAP with a short position of Ubiquiti Networks. Check out your portfolio center. Please also check ongoing floating volatility patterns of AAP and Ubiquiti Networks.

Diversification Opportunities for AAP and Ubiquiti Networks

-0.69

Correlation Coefficient

AAP  Ubiquiti Networks

Excellent diversification

The 3 months correlation between AAP and Ubiquiti is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding AAP Inc and Ubiquiti Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ubiquiti Networks and AAP 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 AAP Inc are associated (or correlated) with Ubiquiti Networks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ubiquiti Networks has no effect on the direction of AAP i.e., AAP and Ubiquiti Networks go up and down completely randomly.

Pair Corralation between AAP and Ubiquiti Networks

Given the investment horizon of 90 days AAP Inc is expected to generate 11.84 times more return on investment than Ubiquiti Networks. However, AAP is 11.84 times more volatile than Ubiquiti Networks. It trades about 0.13 of its potential returns per unit of risk. Ubiquiti Networks is currently generating about 0.15 per unit of risk. If you would invest  0.04  in AAP Inc on September 13, 2024 and sell it today you would lose (0.02) from holding AAP Inc or give up 50.0% of portfolio value over 90 days.

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

AAP Inc  vs.  Ubiquiti Networks

AAP Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AAP Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, AAP revealed solid returns over the last few months and may actually be approaching a breakup point.

Ubiquiti Networks

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ubiquiti Networks are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, Ubiquiti Networks demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AAP and Ubiquiti Networks

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

The idea behind AAP Inc and Ubiquiti Networks 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.