Correlation Between Booz Allen and American Diversified

Can any of the company-specific risk be diversified away by investing in both Booz Allen and American Diversified 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 Booz Allen and American Diversified into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Booz Allen Hamilton and American Diversified Holdings, you can compare the effects of market volatilities on Booz Allen and American Diversified 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 Booz Allen with a short position of American Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of Booz Allen and American Diversified.

Diversification Opportunities for Booz Allen and American Diversified

0.65

Correlation Coefficient

Booz Allen  American Diversified

Poor diversification

The 3 months correlation between Booz and American is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Booz Allen Hamilton and American Diversified Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Diversified and Booz Allen 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 Booz Allen Hamilton are associated (or correlated) with American Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Diversified has no effect on the direction of Booz Allen i.e., Booz Allen and American Diversified go up and down completely randomly.

Pair Corralation between Booz Allen and American Diversified

Considering the 90-day investment horizon Booz Allen Hamilton is expected to under-perform the American Diversified. But the stock apears to be less risky and, when comparing its historical volatility, Booz Allen Hamilton is 5.48 times less risky than American Diversified. The stock trades about -0.11 of its potential returns per unit of risk. The American Diversified Holdings is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  0.16  in American Diversified Holdings on December 28, 2024 and sell it today you would lose (0.07) from holding American Diversified Holdings or give up 43.75% of portfolio value over 90 days.

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

Booz Allen Hamilton  vs.  American Diversified Holdings

Booz Allen Hamilton

Risk-Adjusted Performance

Very Weak

Over the last 90 days Booz Allen Hamilton has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

American Diversified

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Diversified Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, American Diversified is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Booz Allen and American Diversified

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

The idea behind Booz Allen Hamilton and American Diversified Holdings 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.