diversifiable risk of combining 90331HPL1 and 00108WAF7 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between US BANK NATIONAL and AEP TEX INC, you can compare the effects of market volatilities on 90331HPL1 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 90331HPL1 with a short position of 00108WAF7. Check out your portfolio center. Please also check ongoing floating volatility patterns of 90331HPL1 and 00108WAF7.
Diversification Opportunities for 90331HPL1 and 00108WAF7
Pair Corralation between 90331HPL1 and 00108WAF7
Assuming the 90 days trading horizon 90331HPL1 is expected to generate 2.93 times less return on investment than 00108WAF7. But when comparing it to its historical volatility, US BANK NATIONAL is 1.7 times less risky than 00108WAF7. It trades about 0.07 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 9,251 in AEP TEX INC on November 30, 2023 and sell it today you would lose (1,771) from holding AEP TEX INC or give up 19.14% of portfolio value over 90 days.
US BANK NATIONAL ASSOCIATION vs. AEP TEX INC 3.8% 01Oct2047
90331HPL1 and 00108WAF7 Volatility Contrast
Pair Trading with 90331HPL1 and 00108WAF7The main advantage of trading using opposite 90331HPL1 and 00108WAF7 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 90331HPL1 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 US BANK NATIONAL 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.
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 AI Investment Finder module to use AI to screen and filter profitable investment opportunities.
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