Correlation Between AMS Small and CM NV

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

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

Diversification Opportunities for AMS Small and CM NV

0.08

Correlation Coefficient

AMS Small  CM NV

Significant diversification

The 3 months correlation between AMS and CMCOM is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding AMS Small Cap and CM NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CM NV and AMS Small 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 AMS Small Cap are associated (or correlated) with CM NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CM NV has no effect on the direction of AMS Small i.e., AMS Small and CM NV go up and down completely randomly.

Pair Corralation between AMS Small and CM NV

Assuming the 90 days trading horizon AMS Small Cap is expected to generate 0.44 times more return on investment than CM NV. However, AMS Small Cap is 2.29 times less risky than CM NV. It trades about 0.0 of its potential returns per unit of risk. CM NV is currently generating about -0.06 per unit of risk. If you would invest  131,108  in AMS Small Cap on October 11, 2024 and sell it today you would lose (2,840) from holding AMS Small Cap or give up 2.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

AMS Small Cap  vs.  CM NV

Pair Trading with AMS Small and CM NV

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

The idea behind AMS Small Cap and CM NV 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.