Correlation Between Dorman Products and American Axle

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

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

Diversification Opportunities for Dorman Products and American Axle

0.04

Correlation Coefficient

Dorman Products  American Axle

Significant diversification

The 3 months correlation between Dorman and American is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Dorman Products and American Axle Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Axle Manufa and Dorman Products 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 Dorman Products are associated (or correlated) with American Axle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Axle Manufa has no effect on the direction of Dorman Products i.e., Dorman Products and American Axle go up and down completely randomly.

Pair Corralation between Dorman Products and American Axle

Given the investment horizon of 90 days Dorman Products is expected to generate 1.19 times more return on investment than American Axle. However, Dorman Products is 1.19 times more volatile than American Axle Manufacturing. It trades about 0.08 of its potential returns per unit of risk. American Axle Manufacturing is currently generating about 0.03 per unit of risk. If you would invest  8,190  in Dorman Products on February 19, 2024 and sell it today you would earn a total of  943.00  from holding Dorman Products or generate 11.51% return on investment over 90 days.

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

Dorman Products  vs.  American Axle Manufacturing

Dorman Products

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dorman Products are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Dorman Products may actually be approaching a critical reversion point that can send shares even higher in June 2024.

American Axle Manufa

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Axle Manufacturing are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, American Axle is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Dorman Products and American Axle

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

The idea behind Dorman Products and American Axle Manufacturing 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.