Correlation Between Affirm Holdings and Stem

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

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

Diversification Opportunities for Affirm Holdings and Stem

-0.1

Correlation Coefficient

Affirm Holdings  Stem

Good diversification

The 3 months correlation between Affirm and Stem is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Affirm Holdings and Stem Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stem Inc and Affirm Holdings 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 Affirm Holdings are associated (or correlated) with Stem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stem Inc has no effect on the direction of Affirm Holdings i.e., Affirm Holdings and Stem go up and down completely randomly.

Pair Corralation between Affirm Holdings and Stem

Given the investment horizon of 90 days Affirm Holdings is expected to generate 0.71 times more return on investment than Stem. However, Affirm Holdings is 1.4 times less risky than Stem. It trades about 0.09 of its potential returns per unit of risk. Stem Inc is currently generating about -0.02 per unit of risk. If you would invest  1,225  in Affirm Holdings on October 10, 2024 and sell it today you would earn a total of  4,904  from holding Affirm Holdings or generate 400.33% return on investment over 90 days.

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

Affirm Holdings  vs.  Stem Inc

Affirm Holdings

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Affirm Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Affirm Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

Stem Inc

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Stem Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting technical and fundamental indicators, Stem displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Affirm Holdings and Stem

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

The idea behind Affirm Holdings and Stem Inc 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.