Correlation Between WBI Power and AAM SP

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

By analyzing existing cross correlation between WBI Power Factor and AAM SP 500, you can compare the effects of market volatilities on WBI Power and AAM SP 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 WBI Power with a short position of AAM SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of WBI Power and AAM SP.

Diversification Opportunities for WBI Power and AAM SP

0.96

Correlation Coefficient

WBI Power  AAM SP

Almost no diversification

The 3 months correlation between WBI and AAM is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding WBI Power Factor and AAM SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAM SP 500 and WBI Power 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 WBI Power Factor are associated (or correlated) with AAM SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAM SP 500 has no effect on the direction of WBI Power i.e., WBI Power and AAM SP go up and down completely randomly.

Pair Corralation between WBI Power and AAM SP

Given the investment horizon of 90 days WBI Power Factor is expected to under-perform the AAM SP. But the etf apears to be less risky and, when comparing its historical volatility, WBI Power Factor is 1.01 times less risky than AAM SP. The etf trades about -0.29 of its potential returns per unit of risk. The AAM SP 500 is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  3,376  in AAM SP 500 on October 12, 2024 and sell it today you would lose (93.00) from holding AAM SP 500 or give up 2.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

WBI Power Factor  vs.  AAM SP 500

WBI Power Factor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WBI Power Factor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, WBI Power is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

AAM SP 500

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AAM SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, AAM SP is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with WBI Power and AAM SP

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

The idea behind WBI Power Factor and AAM SP 500 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.