Correlation Between WM Technology and AEye

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

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

Diversification Opportunities for WM Technology and AEye

0.46

Correlation Coefficient

WM Technology  AEye

Very weak diversification

The 3 months correlation between MAPSW and AEye is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding WM Technology and AEye Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AEye Inc and WM 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 WM Technology are associated (or correlated) with AEye. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AEye Inc has no effect on the direction of WM Technology i.e., WM Technology and AEye go up and down completely randomly.

Pair Corralation between WM Technology and AEye

Assuming the 90 days horizon WM Technology is expected to generate 1.87 times less return on investment than AEye. But when comparing it to its historical volatility, WM Technology is 1.4 times less risky than AEye. It trades about 0.08 of its potential returns per unit of risk. AEye Inc is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.90  in AEye Inc on September 2, 2024 and sell it today you would earn a total of  0.30  from holding AEye Inc or generate 33.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.88%
Values	Daily Returns

WM Technology  vs.  AEye Inc

WM Technology

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WM Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, WM Technology showed solid returns over the last few months and may actually be approaching a breakup point.

AEye Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AEye Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, AEye showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with WM Technology and AEye

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

The idea behind WM Technology and AEye Inc 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.