Correlation Between American Axle and Cars

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

Diversification Opportunities for American Axle and Cars

0.58

Correlation Coefficient

American Axle  Cars

Very weak diversification

The 3 months correlation between American and Cars is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding American Axle Manufacturing and Cars Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cars Inc 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 Cars. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cars Inc has no effect on the direction of American Axle i.e., American Axle and Cars go up and down completely randomly.

Pair Corralation between American Axle and Cars

Considering the 90-day investment horizon American Axle is expected to generate 2.1 times less return on investment than Cars. In addition to that, American Axle is 1.2 times more volatile than Cars Inc. It trades about 0.01 of its total potential returns per unit of risk. Cars Inc is currently generating about 0.02 per unit of volatility. If you would invest  1,813  in Cars Inc on August 31, 2024 and sell it today you would earn a total of  157.00  from holding Cars Inc or generate 8.66% return on investment over 90 days.

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

American Axle Manufacturing  vs.  Cars Inc

American Axle Manufa

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Axle Manufacturing are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, American Axle may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Cars Inc

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cars Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Cars unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Axle and Cars

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

The idea behind American Axle Manufacturing and Cars Inc 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.