Correlation Between Alps Electric and American Aires

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

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

Diversification Opportunities for Alps Electric and American Aires

-0.37

Correlation Coefficient

Alps Electric  American Aires

Very good diversification

The 3 months correlation between Alps and American is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Alps Electric Co and American Aires in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Aires and Alps Electric 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 Alps Electric Co are associated (or correlated) with American Aires. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Aires has no effect on the direction of Alps Electric i.e., Alps Electric and American Aires go up and down completely randomly.

Pair Corralation between Alps Electric and American Aires

Assuming the 90 days horizon Alps Electric is expected to generate 3.63 times less return on investment than American Aires. But when comparing it to its historical volatility, Alps Electric Co is 3.44 times less risky than American Aires. It trades about 0.03 of its potential returns per unit of risk. American Aires is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  13.00  in American Aires on December 29, 2024 and sell it today you would earn a total of  0.00  from holding American Aires or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Alps Electric Co  vs.  American Aires

Alps Electric

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alps Electric Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Alps Electric is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

American Aires

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Aires are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, American Aires reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alps Electric and American Aires

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

The idea behind Alps Electric Co and American Aires 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.