Correlation Between Aerius International and Potash America

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

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

Diversification Opportunities for Aerius International and Potash America

0.58

Correlation Coefficient

Aerius International  Potash America

Very weak diversification

The 3 months correlation between Aerius and Potash is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Aerius International and Potash America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Potash America and Aerius International 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 Aerius International 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 Aerius International i.e., Aerius International and Potash America go up and down completely randomly.

Pair Corralation between Aerius International and Potash America

Given the investment horizon of 90 days Aerius International is expected to generate 4.73 times less return on investment than Potash America. But when comparing it to its historical volatility, Aerius International is 4.89 times less risky than Potash America. It trades about 0.12 of its potential returns per unit of risk. Potash America is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.08  in Potash America on November 30, 2024 and sell it today you would earn a total of  0.03  from holding Potash America or generate 37.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.83%
Values	Daily Returns

Aerius International  vs.  Potash America

Aerius International

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aerius International are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Aerius International unveiled solid returns over the last few months and may actually be approaching a breakup point.

Potash America

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Potash America are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Potash America displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aerius International and Potash America

The main advantage of trading using opposite Aerius International and Potash America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aerius International 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 Aerius International 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.