Correlation Between Aehr Test and AXT
Can any of the company-specific risk be diversified away by investing in both Aehr Test and AXT 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 Aehr Test and AXT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aehr Test Systems and AXT Inc, you can compare the effects of market volatilities on Aehr Test and AXT 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 Aehr Test with a short position of AXT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aehr Test and AXT.
Diversification Opportunities for Aehr Test and AXT
Very poor diversification
The 3 months correlation between Aehr and AXT is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Aehr Test Systems and AXT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AXT Inc and Aehr Test 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 Aehr Test Systems are associated (or correlated) with AXT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AXT Inc has no effect on the direction of Aehr Test i.e., Aehr Test and AXT go up and down completely randomly.
Pair Corralation between Aehr Test and AXT
Given the investment horizon of 90 days Aehr Test Systems is expected to generate 0.84 times more return on investment than AXT. However, Aehr Test Systems is 1.19 times less risky than AXT. It trades about -0.2 of its potential returns per unit of risk. AXT Inc is currently generating about -0.22 per unit of risk. If you would invest 1,584 in Aehr Test Systems on August 27, 2024 and sell it today you would lose (317.00) from holding Aehr Test Systems or give up 20.01% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Aehr Test Systems vs. AXT Inc
Performance |
| Timeline |
| Aehr Test Systems |
| AXT Inc |
Aehr Test and AXT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Aehr Test and AXT
The main advantage of trading using opposite Aehr Test and AXT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aehr Test position performs unexpectedly, AXT 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 AXT will offset losses from the drop in AXT's long position.The idea behind Aehr Test Systems and AXT 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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