Correlation Between Extended Market and Aeye

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

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

Diversification Opportunities for Extended Market and Aeye

-0.05

Correlation Coefficient

Extended Market  Aeye

Good diversification

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

Pair Corralation between Extended Market and Aeye

Assuming the 90 days horizon Extended Market Index is expected to under-perform the Aeye. But the mutual fund apears to be less risky and, when comparing its historical volatility, Extended Market Index is 8.13 times less risky than Aeye. The mutual fund trades about -0.19 of its potential returns per unit of risk. The Aeye Inc is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  101.00  in Aeye Inc on December 4, 2024 and sell it today you would lose (43.00) from holding Aeye Inc or give up 42.57% of portfolio value over 90 days.

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

Extended Market Index  vs.  Aeye Inc

Extended Market Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Extended Market Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Aeye Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aeye Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, Aeye is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Extended Market and Aeye

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

The idea behind Extended Market Index and Aeye 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.