Correlation Between American Public and Sodexo PK

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

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

Diversification Opportunities for American Public and Sodexo PK

-0.23

Correlation Coefficient

American Public  Sodexo PK

Very good diversification

The 3 months correlation between American and Sodexo is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding American Public Education and Sodexo PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sodexo PK and American Public 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 Public Education are associated (or correlated) with Sodexo PK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sodexo PK has no effect on the direction of American Public i.e., American Public and Sodexo PK go up and down completely randomly.

Pair Corralation between American Public and Sodexo PK

Given the investment horizon of 90 days American Public Education is expected to generate 1.54 times more return on investment than Sodexo PK. However, American Public is 1.54 times more volatile than Sodexo PK. It trades about -0.18 of its potential returns per unit of risk. Sodexo PK is currently generating about -0.27 per unit of risk. If you would invest  2,224  in American Public Education on October 12, 2024 and sell it today you would lose (231.00) from holding American Public Education or give up 10.39% of portfolio value over 90 days.

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

American Public Education  vs.  Sodexo PK

American Public Education

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Public Education are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical and fundamental indicators, American Public demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Sodexo PK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sodexo PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with American Public and Sodexo PK

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

The idea behind American Public Education and Sodexo PK 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.