Correlation Between AAP and KVH Industries

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

By analyzing existing cross correlation between AAP Inc and KVH Industries, you can compare the effects of market volatilities on AAP and KVH Industries 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 AAP with a short position of KVH Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of AAP and KVH Industries.

Diversification Opportunities for AAP and KVH Industries

-0.25

Correlation Coefficient

AAP  KVH Industries

Very good diversification

The 3 months correlation between AAP and KVH is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding AAP Inc and KVH Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KVH Industries and AAP 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 AAP Inc are associated (or correlated) with KVH Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KVH Industries has no effect on the direction of AAP i.e., AAP and KVH Industries go up and down completely randomly.

Pair Corralation between AAP and KVH Industries

Given the investment horizon of 90 days AAP Inc is expected to generate 11.63 times more return on investment than KVH Industries. However, AAP is 11.63 times more volatile than KVH Industries. It trades about 0.09 of its potential returns per unit of risk. KVH Industries is currently generating about 0.15 per unit of risk. If you would invest  0.03  in AAP Inc on September 3, 2024 and sell it today you would lose (0.01) from holding AAP Inc or give up 33.33% of portfolio value over 90 days.

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

AAP Inc  vs.  KVH Industries

AAP Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AAP Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, AAP revealed solid returns over the last few months and may actually be approaching a breakup point.

KVH Industries

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KVH Industries are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain technical indicators, KVH Industries demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AAP and KVH Industries

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

The idea behind AAP Inc and KVH Industries 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.