Correlation Between American Security and Atlantic Wind

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

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

Diversification Opportunities for American Security and Atlantic Wind

-0.12

Correlation Coefficient

American Security  Atlantic Wind

Good diversification

The 3 months correlation between American and Atlantic is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding American Security Resources and Atlantic Wind Solar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Atlantic Wind Solar and American Security 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 Security Resources are associated (or correlated) with Atlantic Wind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Atlantic Wind Solar has no effect on the direction of American Security i.e., American Security and Atlantic Wind go up and down completely randomly.

Pair Corralation between American Security and Atlantic Wind

Given the investment horizon of 90 days American Security is expected to generate 1.79 times less return on investment than Atlantic Wind. In addition to that, American Security is 1.74 times more volatile than Atlantic Wind Solar. It trades about 0.06 of its total potential returns per unit of risk. Atlantic Wind Solar is currently generating about 0.18 per unit of volatility. If you would invest  2.66  in Atlantic Wind Solar on December 1, 2024 and sell it today you would earn a total of  2.54  from holding Atlantic Wind Solar or generate 95.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

American Security Resources  vs.  Atlantic Wind Solar

American Security

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Security Resources are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, American Security exhibited solid returns over the last few months and may actually be approaching a breakup point.

Atlantic Wind Solar

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Atlantic Wind Solar are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Atlantic Wind disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Security and Atlantic Wind

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

The idea behind American Security Resources and Atlantic Wind Solar 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.