Correlation Between American Diversified and Potash America

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

Diversification Opportunities for American Diversified and Potash America

-0.51

Correlation Coefficient

American Diversified  Potash America

Excellent diversification

The 3 months correlation between American and Potash is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding American Diversified Holdings and Potash America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Potash America 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 Potash America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Potash America has no effect on the direction of American Diversified i.e., American Diversified and Potash America go up and down completely randomly.

Pair Corralation between American Diversified and Potash America

Given the investment horizon of 90 days American Diversified Holdings is expected to under-perform the Potash America. But the pink sheet apears to be less risky and, when comparing its historical volatility, American Diversified Holdings is 1.72 times less risky than Potash America. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Potash America is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  0.05  in Potash America on December 29, 2024 and sell it today you would earn a total of  0.13  from holding Potash America or generate 260.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

American Diversified Holdings  vs.  Potash America

American Diversified

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Diversified Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Potash America

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Potash America are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Potash America displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Diversified and Potash America

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

The idea behind American Diversified Holdings and Potash America 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.