Correlation Between Aspen Technology and TomTom NV

Can any of the company-specific risk be diversified away by investing in both Aspen Technology and TomTom NV 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 Aspen Technology and TomTom NV into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aspen Technology and TomTom NV, you can compare the effects of market volatilities on Aspen Technology and TomTom NV 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 Aspen Technology with a short position of TomTom NV. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aspen Technology and TomTom NV.

Diversification Opportunities for Aspen Technology and TomTom NV

0.55

Correlation Coefficient

Aspen Technology  TomTom NV

Very weak diversification

The 3 months correlation between Aspen and TomTom is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Aspen Technology and TomTom NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TomTom NV and Aspen Technology 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 Aspen Technology are associated (or correlated) with TomTom NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TomTom NV has no effect on the direction of Aspen Technology i.e., Aspen Technology and TomTom NV go up and down completely randomly.

Pair Corralation between Aspen Technology and TomTom NV

Given the investment horizon of 90 days Aspen Technology is expected to generate 0.81 times more return on investment than TomTom NV. However, Aspen Technology is 1.24 times less risky than TomTom NV. It trades about 0.04 of its potential returns per unit of risk. TomTom NV is currently generating about 0.0 per unit of risk. If you would invest  21,451  in Aspen Technology on September 12, 2024 and sell it today you would earn a total of  3,744  from holding Aspen Technology or generate 17.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.6%
Values	Daily Returns

Aspen Technology  vs.  TomTom NV

Aspen Technology

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aspen Technology are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Aspen Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

TomTom NV

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in TomTom NV are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, TomTom NV reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aspen Technology and TomTom NV

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

The idea behind Aspen Technology and TomTom NV 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.