Correlation Between American Axle and Dream Finders

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

Diversification Opportunities for American Axle and Dream Finders

-0.16

Correlation Coefficient

American Axle  Dream Finders

Good diversification

The 3 months correlation between American and Dream is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding American Axle Manufacturing and Dream Finders Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dream Finders Homes 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 Dream Finders. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dream Finders Homes has no effect on the direction of American Axle i.e., American Axle and Dream Finders go up and down completely randomly.

Pair Corralation between American Axle and Dream Finders

Considering the 90-day investment horizon American Axle Manufacturing is expected to under-perform the Dream Finders. But the stock apears to be less risky and, when comparing its historical volatility, American Axle Manufacturing is 1.08 times less risky than Dream Finders. The stock trades about -0.13 of its potential returns per unit of risk. The Dream Finders Homes is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,284  in Dream Finders Homes on December 28, 2024 and sell it today you would earn a total of  82.00  from holding Dream Finders Homes or generate 3.59% return on investment over 90 days.

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

American Axle Manufacturing  vs.  Dream Finders Homes

American Axle Manufa

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Axle Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Dream Finders Homes

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dream Finders Homes are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal technical and fundamental indicators, Dream Finders may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with American Axle and Dream Finders

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

The idea behind American Axle Manufacturing and Dream Finders Homes 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.