Correlation Between American Superconductor and NGK Insulators

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

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

Diversification Opportunities for American Superconductor and NGK Insulators

0.58

Correlation Coefficient

American Superconductor  NGK Insulators

Very weak diversification

The 3 months correlation between American and NGK is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding American Superconductor and NGK Insulators in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NGK Insulators and American Superconductor 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 American Superconductor are associated (or correlated) with NGK Insulators. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NGK Insulators has no effect on the direction of American Superconductor i.e., American Superconductor and NGK Insulators go up and down completely randomly.

Pair Corralation between American Superconductor and NGK Insulators

Given the investment horizon of 90 days American Superconductor is expected to under-perform the NGK Insulators. In addition to that, American Superconductor is 4.28 times more volatile than NGK Insulators. It trades about -0.16 of its total potential returns per unit of risk. NGK Insulators is currently generating about 0.01 per unit of volatility. If you would invest  1,288  in NGK Insulators on September 15, 2024 and sell it today you would earn a total of  2.00  from holding NGK Insulators or generate 0.16% return on investment over 90 days.

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

American Superconductor  vs.  NGK Insulators

American Superconductor

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Superconductor are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, American Superconductor exhibited solid returns over the last few months and may actually be approaching a breakup point.

NGK Insulators

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NGK Insulators are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, NGK Insulators may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with American Superconductor and NGK Insulators

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

The idea behind American Superconductor and NGK Insulators 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.