Correlation Between West Red and American Axle
Can any of the company-specific risk be diversified away by investing in both West Red 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 West Red and American Axle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between West Red Lake and American Axle Manufacturing, you can compare the effects of market volatilities on West Red 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 West Red with a short position of American Axle. Check out your portfolio center. Please also check ongoing floating volatility patterns of West Red and American Axle.
Diversification Opportunities for West Red and American Axle
-0.56 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between West and American is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding West Red Lake 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 West Red 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 West Red Lake 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 West Red i.e., West Red and American Axle go up and down completely randomly.
Pair Corralation between West Red and American Axle
Assuming the 90 days horizon West Red Lake is expected to generate 2.34 times more return on investment than American Axle. However, West Red is 2.34 times more volatile than American Axle Manufacturing. It trades about 0.04 of its potential returns per unit of risk. American Axle Manufacturing is currently generating about 0.0 per unit of risk. If you would invest 28.00 in West Red Lake on September 14, 2024 and sell it today you would earn a total of 14.00 from holding West Red Lake or generate 50.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.75% |
| Values | Daily Returns |
West Red Lake vs. American Axle Manufacturing
Performance |
| Timeline |
| West Red Lake |
| American Axle Manufa |
West Red and American Axle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with West Red and American Axle
The main advantage of trading using opposite West Red and American Axle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if West Red 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.| West Red vs. Copa Holdings SA | West Red vs. United Airlines Holdings | West Red vs. Delta Air Lines | West Red vs. SkyWest |
| American Axle vs. Ford Motor | American Axle vs. General Motors | American Axle vs. Goodyear Tire Rubber | American Axle vs. Li Auto |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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