Correlation Between Advantage Solutions and Potash America

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

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

Diversification Opportunities for Advantage Solutions and Potash America

0.3

Correlation Coefficient

Advantage Solutions  Potash America

Weak diversification

The 3 months correlation between Advantage and Potash is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Advantage Solutions and Potash America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Potash America and Advantage Solutions 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 Advantage Solutions 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 Advantage Solutions i.e., Advantage Solutions and Potash America go up and down completely randomly.

Pair Corralation between Advantage Solutions and Potash America

Assuming the 90 days horizon Advantage Solutions is expected to under-perform the Potash America. In addition to that, Advantage Solutions is 3.22 times more volatile than Potash America. It trades about -0.04 of its total potential returns per unit of risk. Potash America is currently generating about 0.02 per unit of volatility. If you would invest  0.08  in Potash America on September 12, 2024 and sell it today you would earn a total of  0.00  from holding Potash America or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	90.48%
Values	Daily Returns

Advantage Solutions  vs.  Potash America

Advantage Solutions

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Advantage Solutions are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Advantage Solutions showed solid returns over the last few months and may actually be approaching a breakup point.

Potash America

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Potash America has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Potash America is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Advantage Solutions and Potash America

The main advantage of trading using opposite Advantage Solutions and Potash America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advantage Solutions 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 Advantage Solutions 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.