Correlation Between REDLANG and AKRO

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

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

Diversification Opportunities for REDLANG and AKRO

-0.18

Correlation Coefficient

REDLANG  AKRO

Good diversification

The 3 months correlation between REDLANG and AKRO is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding REDLANG and AKRO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AKRO and REDLANG 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 REDLANG are associated (or correlated) with AKRO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AKRO has no effect on the direction of REDLANG i.e., REDLANG and AKRO go up and down completely randomly.

Pair Corralation between REDLANG and AKRO

Assuming the 90 days trading horizon REDLANG is expected to generate 1.2 times more return on investment than AKRO. However, REDLANG is 1.2 times more volatile than AKRO. It trades about 0.06 of its potential returns per unit of risk. AKRO is currently generating about 0.01 per unit of risk. If you would invest  0.09  in REDLANG on August 30, 2024 and sell it today you would earn a total of  0.01  from holding REDLANG or generate 13.04% return on investment over 90 days.

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

REDLANG  vs.  AKRO

REDLANG

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in REDLANG are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady essential indicators, REDLANG reported solid returns over the last few months and may actually be approaching a breakup point.

AKRO

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with REDLANG and AKRO

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

The idea behind REDLANG and AKRO 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.