Correlation Between MACYS and 00108WAF7

Can any of the company-specific risk be diversified away by investing in both MACYS and 00108WAF7 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 MACYS and 00108WAF7 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MACYS RETAIL HLDGS and AEP TEX INC, you can compare the effects of market volatilities on MACYS and 00108WAF7 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 MACYS with a short position of 00108WAF7. Check out your portfolio center. Please also check ongoing floating volatility patterns of MACYS and 00108WAF7.

Diversification Opportunities for MACYS and 00108WAF7

-0.05

Correlation Coefficient

MACYS  00108WAF7

Good diversification

The 3 months correlation between MACYS and 00108WAF7 is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding MACYS RETAIL HLDGS and AEP TEX INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AEP TEX INC and MACYS 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 MACYS RETAIL HLDGS are associated (or correlated) with 00108WAF7. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AEP TEX INC has no effect on the direction of MACYS i.e., MACYS and 00108WAF7 go up and down completely randomly.

Pair Corralation between MACYS and 00108WAF7

Assuming the 90 days trading horizon MACYS RETAIL HLDGS is expected to under-perform the 00108WAF7. But the bond apears to be less risky and, when comparing its historical volatility, MACYS RETAIL HLDGS is 110.23 times less risky than 00108WAF7. The bond trades about -0.03 of its potential returns per unit of risk. The AEP TEX INC is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  7,707  in AEP TEX INC on September 26, 2024 and sell it today you would lose (39.00) from holding AEP TEX INC or give up 0.51% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	79.66%
Values	Daily Returns

MACYS RETAIL HLDGS  vs.  AEP TEX INC

MACYS RETAIL HLDGS

Risk-Adjusted Performance

0 of 100

Very Weak

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

AEP TEX INC

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AEP TEX INC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, 00108WAF7 sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MACYS and 00108WAF7

The main advantage of trading using opposite MACYS and 00108WAF7 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MACYS position performs unexpectedly, 00108WAF7 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 00108WAF7 will offset losses from the drop in 00108WAF7's long position.

The idea behind MACYS RETAIL HLDGS and AEP TEX 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.

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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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.