Correlation Between Advanced Drainage and Aspen Aerogels

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

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

Diversification Opportunities for Advanced Drainage and Aspen Aerogels

0.85

Correlation Coefficient

Advanced Drainage  Aspen Aerogels

Very poor diversification

The 3 months correlation between Advanced and Aspen is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Drainage Systems and Aspen Aerogels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aspen Aerogels and Advanced Drainage 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 Advanced Drainage Systems are associated (or correlated) with Aspen Aerogels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aspen Aerogels has no effect on the direction of Advanced Drainage i.e., Advanced Drainage and Aspen Aerogels go up and down completely randomly.

Pair Corralation between Advanced Drainage and Aspen Aerogels

Considering the 90-day investment horizon Advanced Drainage is expected to generate 1.33 times less return on investment than Aspen Aerogels. But when comparing it to its historical volatility, Advanced Drainage Systems is 1.72 times less risky than Aspen Aerogels. It trades about 0.04 of its potential returns per unit of risk. Aspen Aerogels is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,268  in Aspen Aerogels on January 24, 2024 and sell it today you would earn a total of  250.00  from holding Aspen Aerogels or generate 19.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Advanced Drainage Systems  vs.  Aspen Aerogels

Advanced Drainage Systems

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Drainage Systems are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent primary indicators, Advanced Drainage unveiled solid returns over the last few months and may actually be approaching a breakup point.

Aspen Aerogels

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aspen Aerogels are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Aspen Aerogels displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advanced Drainage and Aspen Aerogels

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

The idea behind Advanced Drainage Systems and Aspen Aerogels 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.