Correlation Between Aptiv PLC and Autoliv

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

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

Diversification Opportunities for Aptiv PLC and Autoliv

0.39

Correlation Coefficient

Aptiv PLC  Autoliv

Weak diversification

The 3 months correlation between Aptiv and Autoliv is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Aptiv PLC and Autoliv in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Autoliv and Aptiv PLC 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 Aptiv PLC are associated (or correlated) with Autoliv. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Autoliv has no effect on the direction of Aptiv PLC i.e., Aptiv PLC and Autoliv go up and down completely randomly.

Pair Corralation between Aptiv PLC and Autoliv

Given the investment horizon of 90 days Aptiv PLC is expected to generate 0.83 times more return on investment than Autoliv. However, Aptiv PLC is 1.21 times less risky than Autoliv. It trades about 0.04 of its potential returns per unit of risk. Autoliv is currently generating about 0.0 per unit of risk. If you would invest  6,011  in Aptiv PLC on December 28, 2024 and sell it today you would earn a total of  214.00  from holding Aptiv PLC or generate 3.56% return on investment over 90 days.

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

Aptiv PLC  vs.  Autoliv

Aptiv PLC

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aptiv PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Aptiv PLC is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Autoliv

Risk-Adjusted Performance

Very Weak

Over the last 90 days Autoliv has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable essential indicators, Autoliv is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Aptiv PLC and Autoliv

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

The idea behind Aptiv PLC and Autoliv 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.