Correlation Between Standard and Adient PLC

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

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

Diversification Opportunities for Standard and Adient PLC

0.84

Correlation Coefficient

Standard  Adient PLC

Very poor diversification

The 3 months correlation between Standard and Adient is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Standard Motor Products and Adient PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adient PLC and Standard 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 Standard Motor Products are associated (or correlated) with Adient PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adient PLC has no effect on the direction of Standard i.e., Standard and Adient PLC go up and down completely randomly.

Pair Corralation between Standard and Adient PLC

Considering the 90-day investment horizon Standard Motor Products is expected to under-perform the Adient PLC. But the stock apears to be less risky and, when comparing its historical volatility, Standard Motor Products is 1.83 times less risky than Adient PLC. The stock trades about -0.16 of its potential returns per unit of risk. The Adient PLC is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,731  in Adient PLC on November 28, 2024 and sell it today you would lose (17.00) from holding Adient PLC or give up 0.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Standard Motor Products  vs.  Adient PLC

Standard Motor Products

Risk-Adjusted Performance

Very Weak

Over the last 90 days Standard Motor Products has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unfluctuating performance, the Stock's primary indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Adient PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Adient PLC 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 Standard and Adient PLC

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

The idea behind Standard Motor Products and Adient PLC 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.