Correlation Between AXP Energy and Clime Investment

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

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

Diversification Opportunities for AXP Energy and Clime Investment

0.2

Correlation Coefficient

AXP Energy  Clime Investment

Modest diversification

The 3 months correlation between AXP and Clime is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding AXP Energy and Clime Investment Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clime Investment Man and AXP Energy 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 AXP Energy are associated (or correlated) with Clime Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clime Investment Man has no effect on the direction of AXP Energy i.e., AXP Energy and Clime Investment go up and down completely randomly.

Pair Corralation between AXP Energy and Clime Investment

Assuming the 90 days horizon AXP Energy is expected to generate 6.84 times less return on investment than Clime Investment. But when comparing it to its historical volatility, AXP Energy is 9.23 times less risky than Clime Investment. It trades about 0.12 of its potential returns per unit of risk. Clime Investment Management is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  0.16  in Clime Investment Management on November 29, 2024 and sell it today you would lose (0.15) from holding Clime Investment Management or give up 93.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

AXP Energy  vs.  Clime Investment Management

AXP Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AXP Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AXP Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Clime Investment Man

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Clime Investment Management are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Clime Investment reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AXP Energy and Clime Investment

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

The idea behind AXP Energy and Clime Investment Management 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.