Correlation Between American Security and Tokyo Electric

Can any of the company-specific risk be diversified away by investing in both American Security and Tokyo Electric 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 Tokyo Electric 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 Tokyo Electric Power, you can compare the effects of market volatilities on American Security and Tokyo Electric 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 Tokyo Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Security and Tokyo Electric.

Diversification Opportunities for American Security and Tokyo Electric

-0.43

Correlation Coefficient

American Security  Tokyo Electric

Very good diversification

The 3 months correlation between American and Tokyo is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding American Security Resources and Tokyo Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyo Electric Power 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 Tokyo Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyo Electric Power has no effect on the direction of American Security i.e., American Security and Tokyo Electric go up and down completely randomly.

Pair Corralation between American Security and Tokyo Electric

Given the investment horizon of 90 days American Security Resources is expected to generate 10.42 times more return on investment than Tokyo Electric. However, American Security is 10.42 times more volatile than Tokyo Electric Power. It trades about 0.03 of its potential returns per unit of risk. Tokyo Electric Power is currently generating about 0.02 per unit of risk. If you would invest  0.54  in American Security Resources on October 5, 2024 and sell it today you would lose (0.53) from holding American Security Resources or give up 98.15% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.4%
Values	Daily Returns

American Security Resources  vs.  Tokyo Electric Power

American Security

Risk-Adjusted Performance

4 of 100

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.

Tokyo Electric Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tokyo Electric Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental 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 American Security and Tokyo Electric

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

The idea behind American Security Resources and Tokyo Electric Power 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.