Correlation Between American Diversified and Experian PLC

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

By analyzing existing cross correlation between American Diversified Holdings and Experian PLC, you can compare the effects of market volatilities on American Diversified and Experian PLC 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 Diversified with a short position of Experian PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Diversified and Experian PLC.

Diversification Opportunities for American Diversified and Experian PLC

0.42

Correlation Coefficient

American Diversified  Experian PLC

Very weak diversification

The 3 months correlation between American and Experian is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding American Diversified Holdings and Experian PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Experian PLC and American Diversified 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 Diversified Holdings are associated (or correlated) with Experian PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Experian PLC has no effect on the direction of American Diversified i.e., American Diversified and Experian PLC go up and down completely randomly.

Pair Corralation between American Diversified and Experian PLC

Given the investment horizon of 90 days American Diversified Holdings is expected to generate 7.41 times more return on investment than Experian PLC. However, American Diversified is 7.41 times more volatile than Experian PLC. It trades about 0.06 of its potential returns per unit of risk. Experian PLC is currently generating about 0.05 per unit of risk. If you would invest  0.11  in American Diversified Holdings on October 6, 2024 and sell it today you would earn a total of  0.03  from holding American Diversified Holdings or generate 27.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.68%
Values	Daily Returns

American Diversified Holdings  vs.  Experian PLC

American Diversified

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Diversified Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent technical indicators, American Diversified exhibited solid returns over the last few months and may actually be approaching a breakup point.

Experian PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Experian PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with American Diversified and Experian PLC

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

The idea behind American Diversified Holdings and Experian PLC 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.