Correlation Between Aeorema Communications and Fannie Mae

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

By analyzing existing cross correlation between Aeorema Communications Plc and Fannie Mae, you can compare the effects of market volatilities on Aeorema Communications and Fannie Mae 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 Aeorema Communications with a short position of Fannie Mae. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aeorema Communications and Fannie Mae.

Diversification Opportunities for Aeorema Communications and Fannie Mae

0.35

Correlation Coefficient

Aeorema Communications  Fannie Mae

Weak diversification

The 3 months correlation between Aeorema and Fannie is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Aeorema Communications Plc and Fannie Mae in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fannie Mae and Aeorema Communications 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 Aeorema Communications Plc are associated (or correlated) with Fannie Mae. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fannie Mae has no effect on the direction of Aeorema Communications i.e., Aeorema Communications and Fannie Mae go up and down completely randomly.

Pair Corralation between Aeorema Communications and Fannie Mae

Assuming the 90 days trading horizon Aeorema Communications Plc is expected to under-perform the Fannie Mae. But the stock apears to be less risky and, when comparing its historical volatility, Aeorema Communications Plc is 4.63 times less risky than Fannie Mae. The stock trades about -0.19 of its potential returns per unit of risk. The Fannie Mae is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  270.00  in Fannie Mae on October 12, 2024 and sell it today you would earn a total of  208.00  from holding Fannie Mae or generate 77.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

Aeorema Communications Plc  vs.  Fannie Mae

Aeorema Communications

Risk-Adjusted Performance

0 of 100

Very Weak

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

Fannie Mae

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fannie Mae are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Fannie Mae unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aeorema Communications and Fannie Mae

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

The idea behind Aeorema Communications Plc and Fannie Mae 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.