Correlation Between American Axle and Pool

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

Diversification Opportunities for American Axle and Pool

0.74

Correlation Coefficient

American Axle  Pool

Poor diversification

The 3 months correlation between American and Pool is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding American Axle Manufacturing and Pool Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pool 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 Pool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pool has no effect on the direction of American Axle i.e., American Axle and Pool go up and down completely randomly.

Pair Corralation between American Axle and Pool

Considering the 90-day investment horizon American Axle Manufacturing is expected to under-perform the Pool. In addition to that, American Axle is 1.22 times more volatile than Pool Corporation. It trades about -0.05 of its total potential returns per unit of risk. Pool Corporation is currently generating about 0.0 per unit of volatility. If you would invest  34,083  in Pool Corporation on October 13, 2024 and sell it today you would lose (1,443) from holding Pool Corporation or give up 4.23% of portfolio value over 90 days.

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

American Axle Manufacturing  vs.  Pool Corp.

American Axle Manufa

Risk-Adjusted Performance

0 of 100

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 latest unfluctuating performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pool

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pool Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with American Axle and Pool

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

The idea behind American Axle Manufacturing and Pool Corporation 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.