Correlation Between Lear and American Axle
Can any of the company-specific risk be diversified away by investing in both Lear 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 Lear and American Axle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lear Corporation and American Axle Manufacturing, you can compare the effects of market volatilities on Lear 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 Lear with a short position of American Axle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lear and American Axle.
Diversification Opportunities for Lear and American Axle
-0.39 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Lear and American is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Lear Corp. 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 Lear 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 Lear Corporation 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 Lear i.e., Lear and American Axle go up and down completely randomly.
Pair Corralation between Lear and American Axle
Considering the 90-day investment horizon Lear is expected to generate 2.23 times less return on investment than American Axle. But when comparing it to its historical volatility, Lear Corporation is 1.91 times less risky than American Axle. It trades about 0.04 of its potential returns per unit of risk. American Axle Manufacturing is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 668.00 in American Axle Manufacturing on January 26, 2024 and sell it today you would earn a total of 88.00 from holding American Axle Manufacturing or generate 13.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lear Corp. vs. American Axle Manufacturing
Performance |
| Timeline |
| Lear |
| American Axle Manufa |
Lear and American Axle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lear and American Axle
The main advantage of trading using opposite Lear and American Axle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lear 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 Lear Corporation 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.| American Axle vs. Fox Factory Holding | American Axle vs. Douglas Dynamics | American Axle vs. Monro Muffler Brake |
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 CEOs Directory module to screen CEOs from public companies around the world.
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