Correlation Between ASPEN TECHINC and Advanced Drainage

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Can any of the company-specific risk be diversified away by investing in both ASPEN TECHINC and Advanced Drainage 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 ASPEN TECHINC and Advanced Drainage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ASPEN TECHINC DL and Advanced Drainage Systems, you can compare the effects of market volatilities on ASPEN TECHINC and Advanced Drainage 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 ASPEN TECHINC with a short position of Advanced Drainage. Check out your portfolio center. Please also check ongoing floating volatility patterns of ASPEN TECHINC and Advanced Drainage.

Diversification Opportunities for ASPEN TECHINC and Advanced Drainage

-0.37
  Correlation Coefficient

Very good diversification

The 3 months correlation between ASPEN and Advanced is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding ASPEN TECHINC DL and Advanced Drainage Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Drainage Systems and ASPEN TECHINC 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 ASPEN TECHINC DL are associated (or correlated) with Advanced Drainage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Drainage Systems has no effect on the direction of ASPEN TECHINC i.e., ASPEN TECHINC and Advanced Drainage go up and down completely randomly.

Pair Corralation between ASPEN TECHINC and Advanced Drainage

Assuming the 90 days horizon ASPEN TECHINC DL is expected to generate 0.54 times more return on investment than Advanced Drainage. However, ASPEN TECHINC DL is 1.84 times less risky than Advanced Drainage. It trades about 0.21 of its potential returns per unit of risk. Advanced Drainage Systems is currently generating about -0.09 per unit of risk. If you would invest  21,800  in ASPEN TECHINC DL on August 29, 2024 and sell it today you would earn a total of  2,000  from holding ASPEN TECHINC DL or generate 9.17% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy95.65%
ValuesDaily Returns

ASPEN TECHINC DL  vs.  Advanced Drainage Systems

 Performance 
       Timeline  
ASPEN TECHINC DL 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in ASPEN TECHINC DL are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, ASPEN TECHINC reported solid returns over the last few months and may actually be approaching a breakup point.
Advanced Drainage Systems 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Advanced Drainage Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

ASPEN TECHINC and Advanced Drainage Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with ASPEN TECHINC and Advanced Drainage

The main advantage of trading using opposite ASPEN TECHINC and Advanced Drainage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ASPEN TECHINC position performs unexpectedly, Advanced Drainage 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 Advanced Drainage will offset losses from the drop in Advanced Drainage's long position.
The idea behind ASPEN TECHINC DL and Advanced Drainage Systems 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.

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