Correlation Between AE and RHOC

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

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

Diversification Opportunities for AE and RHOC

0.05

Correlation Coefficient

AE  RHOC

Significant diversification

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

Pair Corralation between AE and RHOC

If you would invest  3.96  in AE on January 29, 2024 and sell it today you would earn a total of  0.24  from holding AE or generate 6.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	4.55%
Values	Daily Returns

AE  vs.  RHOC

AE

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AE are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, AE exhibited solid returns over the last few months and may actually be approaching a breakup point.

RHOC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RHOC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, RHOC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with AE and RHOC

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

The idea behind AE and RHOC 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.

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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.