Correlation Between AE and Waves

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

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

Diversification Opportunities for AE and Waves

0.81

Correlation Coefficient

AE  Waves

Very poor diversification

The 3 months correlation between AE and Waves is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding AE and Waves in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waves and AE 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 AE are associated (or correlated) with Waves. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waves has no effect on the direction of AE i.e., AE and Waves go up and down completely randomly.

Pair Corralation between AE and Waves

Assuming the 90 days horizon AE is expected to generate 2.06 times less return on investment than Waves. In addition to that, AE is 1.33 times more volatile than Waves. It trades about 0.1 of its total potential returns per unit of risk. Waves is currently generating about 0.26 per unit of volatility. If you would invest  100.00  in Waves on September 2, 2024 and sell it today you would earn a total of  124.00  from holding Waves or generate 124.0% return on investment over 90 days.

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

AE  vs.  Waves

AE

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AE are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, AE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Waves

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Waves are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Waves exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AE and Waves

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

The idea behind AE and Waves 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.