Correlation Between PACCAR and American Axle
Can any of the company-specific risk be diversified away by investing in both PACCAR and American Axle 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 PACCAR and American Axle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PACCAR Inc and American Axle Manufacturing, you can compare the effects of market volatilities on PACCAR and American Axle 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 PACCAR with a short position of American Axle. Check out your portfolio center. Please also check ongoing floating volatility patterns of PACCAR and American Axle.
Diversification Opportunities for PACCAR and American Axle
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between PACCAR and American is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and American Axle Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Axle Manufa and PACCAR 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 PACCAR Inc are associated (or correlated) with American Axle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Axle Manufa has no effect on the direction of PACCAR i.e., PACCAR and American Axle go up and down completely randomly.
Pair Corralation between PACCAR and American Axle
Given the investment horizon of 90 days PACCAR Inc is expected to under-perform the American Axle. But the stock apears to be less risky and, when comparing its historical volatility, PACCAR Inc is 1.74 times less risky than American Axle. The stock trades about -0.02 of its potential returns per unit of risk. The American Axle Manufacturing is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 671.00 in American Axle Manufacturing on September 12, 2024 and sell it today you would earn a total of 12.00 from holding American Axle Manufacturing or generate 1.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
PACCAR Inc vs. American Axle Manufacturing
Performance |
| Timeline |
| PACCAR Inc |
| American Axle Manufa |
PACCAR and American Axle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PACCAR and American Axle
The main advantage of trading using opposite PACCAR and American Axle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PACCAR position performs unexpectedly, American Axle 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 American Axle will offset losses from the drop in American Axle's long position.The idea behind PACCAR Inc and American Axle Manufacturing 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.| American Axle vs. Cooper Stnd | American Axle vs. Motorcar Parts of | American Axle vs. Stoneridge | American Axle vs. Dorman Products |
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
Other Complementary Tools
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios | |
| Money Flow Index Determine momentum by analyzing Money Flow Index and other technical indicators | |
| Pattern Recognition Use different Pattern Recognition models to time the market across multiple global exchanges | |
| Funds Screener Find actively-traded funds from around the world traded on over 30 global exchanges | |
| Bonds Directory Find actively traded corporate debentures issued by US companies |