Correlation Between 00108WAF7 and L4441RAA4

Can any of the company-specific risk be diversified away by investing in both 00108WAF7 and L4441RAA4 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 00108WAF7 and L4441RAA4 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AEP TEX INC and USL4441RAA43, you can compare the effects of market volatilities on 00108WAF7 and L4441RAA4 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 00108WAF7 with a short position of L4441RAA4. Check out your portfolio center. Please also check ongoing floating volatility patterns of 00108WAF7 and L4441RAA4.

Diversification Opportunities for 00108WAF7 and L4441RAA4

-0.18

Correlation Coefficient

00108WAF7 L4441RAA4

Good diversification

The 3 months correlation between 00108WAF7 and L4441RAA4 is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding AEP TEX INC 3.8% 01Oct2047 and USL4441RAA43 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on USL4441RAA43 and 00108WAF7 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 AEP TEX INC are associated (or correlated) with L4441RAA4. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of USL4441RAA43 has no effect on the direction of 00108WAF7 i.e., 00108WAF7 and L4441RAA4 go up and down completely randomly.

Pair Corralation between 00108WAF7 and L4441RAA4

Assuming the 90 days trading horizon AEP TEX INC is expected to generate 0.74 times more return on investment than L4441RAA4. However, AEP TEX INC is 1.35 times less risky than L4441RAA4. It trades about 0.06 of its potential returns per unit of risk. USL4441RAA43 is currently generating about 0.03 per unit of risk. If you would invest  7,437  in AEP TEX INC on February 28, 2023 and sell it today you would earn a total of  784.00  from holding AEP TEX INC or generate 10.54% return on investment over 90 days.

AEP TEX INC 3.8% 01Oct2047  vs.  USL4441RAA43

AEP TEX INC

00108WAF7 Performance

10 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in AEP TEX INC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, 00108WAF7 sustained solid returns over the last few months and may actually be approaching a breakup point.

USL4441RAA43

L4441RAA4 Performance

1 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in USL4441RAA43 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, L4441RAA4 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with 00108WAF7 and L4441RAA4

The main advantage of trading using opposite 00108WAF7 and L4441RAA4 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 00108WAF7 position performs unexpectedly, L4441RAA4 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 L4441RAA4 will offset losses from the drop in L4441RAA4's long position.

The idea behind AEP TEX INC and USL4441RAA43 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.