Correlation Between Madison Square and Axalta Coating

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

By analyzing existing cross correlation between Madison Square Garden and Axalta Coating Systems, you can compare the effects of market volatilities on Madison Square and Axalta Coating 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 Madison Square with a short position of Axalta Coating. Check out your portfolio center. Please also check ongoing floating volatility patterns of Madison Square and Axalta Coating.

Diversification Opportunities for Madison Square and Axalta Coating

0.71

Correlation Coefficient

Madison Square  Axalta Coating

Poor diversification

The 3 months correlation between Madison and Axalta is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Madison Square Garden and Axalta Coating Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axalta Coating Systems and Madison Square 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 Madison Square Garden are associated (or correlated) with Axalta Coating. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axalta Coating Systems has no effect on the direction of Madison Square i.e., Madison Square and Axalta Coating go up and down completely randomly.

Pair Corralation between Madison Square and Axalta Coating

Given the investment horizon of 90 days Madison Square Garden is expected to under-perform the Axalta Coating. But the stock apears to be less risky and, when comparing its historical volatility, Madison Square Garden is 1.06 times less risky than Axalta Coating. The stock trades about -0.04 of its potential returns per unit of risk. The Axalta Coating Systems is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  3,401  in Axalta Coating Systems on December 28, 2024 and sell it today you would lose (90.00) from holding Axalta Coating Systems or give up 2.65% of portfolio value over 90 days.

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

Madison Square Garden  vs.  Axalta Coating Systems

Madison Square Garden

Risk-Adjusted Performance

Very Weak

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

Axalta Coating Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Axalta Coating Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Axalta Coating is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Madison Square and Axalta Coating

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

The idea behind Madison Square Garden and Axalta Coating 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.