Correlation Between American Axle and Autoliv

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

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

Diversification Opportunities for American Axle and Autoliv

0.62

Correlation Coefficient

American Axle  Autoliv

Poor diversification

The 3 months correlation between American and Autoliv is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding American Axle Manufacturing and Autoliv in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Autoliv and American Axle 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 Axle Manufacturing are associated (or correlated) with Autoliv. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Autoliv has no effect on the direction of American Axle i.e., American Axle and Autoliv go up and down completely randomly.

Pair Corralation between American Axle and Autoliv

Considering the 90-day investment horizon American Axle Manufacturing is expected to generate 1.34 times more return on investment than Autoliv. However, American Axle is 1.34 times more volatile than Autoliv. It trades about 0.05 of its potential returns per unit of risk. Autoliv is currently generating about 0.01 per unit of risk. If you would invest  622.00  in American Axle Manufacturing on September 1, 2024 and sell it today you would earn a total of  39.00  from holding American Axle Manufacturing or generate 6.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

American Axle Manufacturing  vs.  Autoliv

American Axle Manufa

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Axle Manufacturing are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile basic indicators, American Axle may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Autoliv

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Autoliv has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable essential indicators, Autoliv is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with American Axle and Autoliv

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

The idea behind American Axle Manufacturing and Autoliv 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 Stocks Directory module to find actively traded stocks across global markets.