Correlation Between American Axle and SM Investments

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

Diversification Opportunities for American Axle and SM Investments

0.09
  Correlation Coefficient

Significant diversification

The 3 months correlation between American and SVTMF is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding American Axle Manufacturing and SM Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Investments 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 SM Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Investments has no effect on the direction of American Axle i.e., American Axle and SM Investments go up and down completely randomly.

Pair Corralation between American Axle and SM Investments

Considering the 90-day investment horizon American Axle Manufacturing is expected to under-perform the SM Investments. In addition to that, American Axle is 1.41 times more volatile than SM Investments. It trades about -0.03 of its total potential returns per unit of risk. SM Investments is currently generating about 0.01 per unit of volatility. If you would invest  1,623  in SM Investments on October 5, 2024 and sell it today you would earn a total of  17.00  from holding SM Investments or generate 1.05% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy61.76%
ValuesDaily Returns

American Axle Manufacturing  vs.  SM Investments

 Performance 
       Timeline  
American Axle Manufa 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.
SM Investments 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in SM Investments are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady primary indicators, SM Investments reported solid returns over the last few months and may actually be approaching a breakup point.

American Axle and SM Investments Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with American Axle and SM Investments

The main advantage of trading using opposite American Axle and SM Investments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Axle position performs unexpectedly, SM Investments 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 SM Investments will offset losses from the drop in SM Investments' long position.
The idea behind American Axle Manufacturing and SM Investments 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.

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