Correlation Between Apple and Advanced Drainage

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

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

Diversification Opportunities for Apple and Advanced Drainage

-0.83

Correlation Coefficient

Apple  Advanced Drainage

Pay attention - limited upside

The 3 months correlation between Apple and Advanced is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and Advanced Drainage Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Drainage Systems and Apple 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 Apple Inc are associated (or correlated) with Advanced Drainage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Drainage Systems has no effect on the direction of Apple i.e., Apple and Advanced Drainage go up and down completely randomly.

Pair Corralation between Apple and Advanced Drainage

Assuming the 90 days trading horizon Apple Inc is expected to generate 0.47 times more return on investment than Advanced Drainage. However, Apple Inc is 2.13 times less risky than Advanced Drainage. It trades about 0.26 of its potential returns per unit of risk. Advanced Drainage Systems is currently generating about -0.14 per unit of risk. If you would invest  20,251  in Apple Inc on October 5, 2024 and sell it today you would earn a total of  3,979  from holding Apple Inc or generate 19.65% return on investment over 90 days.

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

Apple Inc  vs.  Advanced Drainage Systems

Apple Inc

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Apple Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather uncertain fundamental indicators, Apple exhibited solid returns over the last few months and may actually be approaching a breakup point.

Advanced Drainage Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advanced Drainage Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Apple and Advanced Drainage

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

The idea behind Apple Inc and Advanced Drainage Systems 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .