Correlation Between Stem and Affirm Holdings

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

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

Diversification Opportunities for Stem and Affirm Holdings

-0.12

Correlation Coefficient

Stem  Affirm Holdings

Good diversification

The 3 months correlation between Stem and Affirm is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Stem Inc and Affirm Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Affirm Holdings and Stem 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 Stem Inc are associated (or correlated) with Affirm Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Affirm Holdings has no effect on the direction of Stem i.e., Stem and Affirm Holdings go up and down completely randomly.

Pair Corralation between Stem and Affirm Holdings

Given the investment horizon of 90 days Stem Inc is expected to generate 4.74 times more return on investment than Affirm Holdings. However, Stem is 4.74 times more volatile than Affirm Holdings. It trades about 0.38 of its potential returns per unit of risk. Affirm Holdings is currently generating about -0.12 per unit of risk. If you would invest  36.00  in Stem Inc on October 10, 2024 and sell it today you would earn a total of  77.00  from holding Stem Inc or generate 213.89% return on investment over 90 days.

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

Stem Inc  vs.  Affirm Holdings

Stem Inc

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Stem Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting technical and fundamental indicators, Stem displayed solid returns over the last few months and may actually be approaching a breakup point.

Affirm Holdings

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Affirm Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Affirm Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stem and Affirm Holdings

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

The idea behind Stem Inc and Affirm Holdings 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.