Correlation Between American Diversified and Potash America

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

By analyzing existing cross correlation between American Diversified Holdings and Potash America, you can compare the effects of market volatilities on American Diversified and Potash America 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 American Diversified with a short position of Potash America. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Diversified and Potash America.

Diversification Opportunities for American Diversified and Potash America

-0.48

Correlation Coefficient

American Diversified  Potash America

Very good diversification

The 3 months correlation between American and Potash is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding American Diversified Holdings and Potash America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Potash America and American Diversified 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 American Diversified Holdings are associated (or correlated) with Potash America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Potash America has no effect on the direction of American Diversified i.e., American Diversified and Potash America go up and down completely randomly.

Pair Corralation between American Diversified and Potash America

Given the investment horizon of 90 days American Diversified Holdings is expected to under-perform the Potash America. In addition to that, American Diversified is 1.85 times more volatile than Potash America. It trades about -0.36 of its total potential returns per unit of risk. Potash America is currently generating about 0.31 per unit of volatility. If you would invest  0.07  in Potash America on August 31, 2024 and sell it today you would earn a total of  0.02  from holding Potash America or generate 28.57% return on investment over 90 days.

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

American Diversified Holdings  vs.  Potash America

American Diversified

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Diversified Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical indicators, American Diversified exhibited solid returns over the last few months and may actually be approaching a breakup point.

Potash America

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Potash America are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Potash America displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Diversified and Potash America

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

The idea behind American Diversified Holdings and Potash America 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.