Correlation Between Allied Electronics and Ascendis Health

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

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

Diversification Opportunities for Allied Electronics and Ascendis Health

0.45

Correlation Coefficient

Allied Electronics  Ascendis Health

Very weak diversification

The 3 months correlation between Allied and Ascendis is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Allied Electronics and Ascendis Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ascendis Health and Allied Electronics 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 Allied Electronics are associated (or correlated) with Ascendis Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ascendis Health has no effect on the direction of Allied Electronics i.e., Allied Electronics and Ascendis Health go up and down completely randomly.

Pair Corralation between Allied Electronics and Ascendis Health

Assuming the 90 days trading horizon Allied Electronics is expected to under-perform the Ascendis Health. But the stock apears to be less risky and, when comparing its historical volatility, Allied Electronics is 2.08 times less risky than Ascendis Health. The stock trades about -0.07 of its potential returns per unit of risk. The Ascendis Health is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  8,700  in Ascendis Health on December 23, 2024 and sell it today you would lose (700.00) from holding Ascendis Health or give up 8.05% of portfolio value over 90 days.

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

Allied Electronics  vs.  Ascendis Health

Allied Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Allied Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Ascendis Health

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ascendis Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Ascendis Health is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Allied Electronics and Ascendis Health

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

The idea behind Allied Electronics and Ascendis Health 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.