Correlation Between Applied Industrial and 00108WAF7

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Can any of the company-specific risk be diversified away by investing in both Applied Industrial and 00108WAF7 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 Applied Industrial and 00108WAF7 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Applied Industrial Technologies and AEP TEX INC, you can compare the effects of market volatilities on Applied Industrial and 00108WAF7 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 Applied Industrial with a short position of 00108WAF7. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Industrial and 00108WAF7.

Diversification Opportunities for Applied Industrial and 00108WAF7

0.51
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Applied and 00108WAF7 is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Applied Industrial Technologie and AEP TEX INC 3.8% 01Oct2047 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AEP TEX INC and Applied Industrial 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 Applied Industrial Technologies are associated (or correlated) with 00108WAF7. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AEP TEX INC has no effect on the direction of Applied Industrial i.e., Applied Industrial and 00108WAF7 go up and down completely randomly.

Pair Corralation between Applied Industrial and 00108WAF7

Considering the 90-day investment horizon Applied Industrial is expected to generate 124.42 times less return on investment than 00108WAF7. But when comparing it to its historical volatility, Applied Industrial Technologies is 76.7 times less risky than 00108WAF7. It trades about 0.08 of its potential returns per unit of risk. AEP TEX INC is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  9,073  in AEP TEX INC on December 3, 2023 and sell it today you would lose (1,593) from holding AEP TEX INC or give up 17.56% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy60.0%
ValuesDaily Returns

Applied Industrial Technologie  vs.  AEP TEX INC 3.8% 01Oct2047

 Performance 
       Timeline  
Applied Industrial 

Risk-Adjusted Performance

14 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Applied Industrial Technologies are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating forward indicators, Applied Industrial unveiled solid returns over the last few months and may actually be approaching a breakup point.
AEP TEX INC 

Risk-Adjusted Performance

3 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in AEP TEX INC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, 00108WAF7 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Applied Industrial and 00108WAF7 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Applied Industrial and 00108WAF7

The main advantage of trading using opposite Applied Industrial and 00108WAF7 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Industrial position performs unexpectedly, 00108WAF7 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 00108WAF7 will offset losses from the drop in 00108WAF7's long position.
The idea behind Applied Industrial Technologies and AEP TEX 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.

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