Correlation Between American Axle and RadNet

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

Diversification Opportunities for American Axle and RadNet

0.74

Correlation Coefficient

American Axle  RadNet

Poor diversification

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

Pair Corralation between American Axle and RadNet

Considering the 90-day investment horizon American Axle Manufacturing is expected to under-perform the RadNet. But the stock apears to be less risky and, when comparing its historical volatility, American Axle Manufacturing is 1.1 times less risky than RadNet. The stock trades about -0.04 of its potential returns per unit of risk. The RadNet Inc is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,662  in RadNet Inc on October 6, 2024 and sell it today you would earn a total of  3,489  from holding RadNet Inc or generate 95.28% 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.  RadNet Inc

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 quite persistent basic indicators, American Axle is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

RadNet Inc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in RadNet Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, RadNet may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with American Axle and RadNet

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

The idea behind American Axle Manufacturing and RadNet 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.

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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.