Correlation Between AKITA Drilling and American Axle

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

By analyzing existing cross correlation between AKITA Drilling and American Axle Manufacturing, you can compare the effects of market volatilities on AKITA Drilling and American Axle 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 AKITA Drilling with a short position of American Axle. Check out your portfolio center. Please also check ongoing floating volatility patterns of AKITA Drilling and American Axle.

Diversification Opportunities for AKITA Drilling and American Axle

0.38

Correlation Coefficient

AKITA Drilling  American Axle

Weak diversification

The 3 months correlation between AKITA and American is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding AKITA Drilling and American Axle Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Axle Manufa and AKITA Drilling 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 AKITA Drilling are associated (or correlated) with American Axle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Axle Manufa has no effect on the direction of AKITA Drilling i.e., AKITA Drilling and American Axle go up and down completely randomly.

Pair Corralation between AKITA Drilling and American Axle

Assuming the 90 days horizon AKITA Drilling is expected to generate 1.01 times less return on investment than American Axle. But when comparing it to its historical volatility, AKITA Drilling is 1.07 times less risky than American Axle. It trades about 0.12 of its potential returns per unit of risk. American Axle Manufacturing is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  583.00  in American Axle Manufacturing on September 13, 2024 and sell it today you would earn a total of  105.00  from holding American Axle Manufacturing or generate 18.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

AKITA Drilling  vs.  American Axle Manufacturing

AKITA Drilling

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AKITA Drilling are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AKITA Drilling reported solid returns over the last few months and may actually be approaching a breakup point.

American Axle Manufa

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Axle Manufacturing are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile basic indicators, American Axle disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AKITA Drilling and American Axle

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

The idea behind AKITA Drilling and American Axle Manufacturing 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.