Correlation Between Ashtead Group and Aarons

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

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

Diversification Opportunities for Ashtead Group and Aarons

0.5

Correlation Coefficient

Ashtead Group  Aarons

Very weak diversification

The 3 months correlation between Ashtead and Aarons is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Ashtead Group plc and The Aarons in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aarons and Ashtead Group 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 Ashtead Group plc are associated (or correlated) with Aarons. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aarons has no effect on the direction of Ashtead Group i.e., Ashtead Group and Aarons go up and down completely randomly.

Pair Corralation between Ashtead Group and Aarons

Assuming the 90 days horizon Ashtead Group plc is expected to generate 4.21 times more return on investment than Aarons. However, Ashtead Group is 4.21 times more volatile than The Aarons. It trades about 0.15 of its potential returns per unit of risk. The Aarons is currently generating about 0.13 per unit of risk. If you would invest  6,825  in Ashtead Group plc on September 12, 2024 and sell it today you would earn a total of  1,237  from holding Ashtead Group plc or generate 18.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	26.98%
Values	Daily Returns

Ashtead Group plc  vs.  The Aarons

Ashtead Group plc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ashtead Group plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Ashtead Group reported solid returns over the last few months and may actually be approaching a breakup point.

Aarons

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days The Aarons has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Aarons is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Ashtead Group and Aarons

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

The idea behind Ashtead Group plc and The Aarons 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.