Correlation Between Aam Select and World Energy

Can any of the company-specific risk be diversified away by investing in both Aam Select and World Energy 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 Aam Select and World Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aam Select Income and World Energy Fund, you can compare the effects of market volatilities on Aam Select and World Energy 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 Aam Select with a short position of World Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aam Select and World Energy.

Diversification Opportunities for Aam Select and World Energy

-0.74

Correlation Coefficient

Aam Select  World Energy

Pay attention - limited upside

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

Pair Corralation between Aam Select and World Energy

Assuming the 90 days horizon Aam Select Income is expected to generate 0.29 times more return on investment than World Energy. However, Aam Select Income is 3.42 times less risky than World Energy. It trades about 0.08 of its potential returns per unit of risk. World Energy Fund is currently generating about -0.11 per unit of risk. If you would invest  926.00  in Aam Select Income on September 12, 2024 and sell it today you would earn a total of  5.00  from holding Aam Select Income or generate 0.54% return on investment over 90 days.

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

Aam Select Income  vs.  World Energy Fund

Aam Select Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aam Select Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Aam Select is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

World Energy

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in World Energy Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, World Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aam Select and World Energy

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

The idea behind Aam Select Income and World Energy Fund 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.