Correlation Between Aeye and Westport Fuel

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

By analyzing existing cross correlation between Aeye Inc and Westport Fuel Systems, you can compare the effects of market volatilities on Aeye and Westport Fuel 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 Aeye with a short position of Westport Fuel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aeye and Westport Fuel.

Diversification Opportunities for Aeye and Westport Fuel

-0.43

Correlation Coefficient

Aeye  Westport Fuel

Very good diversification

The 3 months correlation between Aeye and Westport is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Aeye Inc and Westport Fuel Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westport Fuel Systems and Aeye 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 Aeye Inc are associated (or correlated) with Westport Fuel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westport Fuel Systems has no effect on the direction of Aeye i.e., Aeye and Westport Fuel go up and down completely randomly.

Pair Corralation between Aeye and Westport Fuel

Given the investment horizon of 90 days Aeye Inc is expected to generate 3.97 times more return on investment than Westport Fuel. However, Aeye is 3.97 times more volatile than Westport Fuel Systems. It trades about 0.0 of its potential returns per unit of risk. Westport Fuel Systems is currently generating about -0.03 per unit of risk. If you would invest  113.00  in Aeye Inc on November 29, 2024 and sell it today you would lose (47.00) from holding Aeye Inc or give up 41.59% of portfolio value over 90 days.

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

Aeye Inc  vs.  Westport Fuel Systems

Aeye Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aeye Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, Aeye is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Westport Fuel Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Westport Fuel Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Aeye and Westport Fuel

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

The idea behind Aeye Inc and Westport Fuel Systems 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 Valuation module to check real value of public entities based on technical and fundamental data.