Correlation Between American Software and Aspen Technology

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

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

Diversification Opportunities for American Software and Aspen Technology

0.72

Correlation Coefficient

American Software  Aspen Technology

Poor diversification

The 3 months correlation between American and Aspen is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding American Software and Aspen Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aspen Technology and American Software 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 Software are associated (or correlated) with Aspen Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aspen Technology has no effect on the direction of American Software i.e., American Software and Aspen Technology go up and down completely randomly.

Pair Corralation between American Software and Aspen Technology

Assuming the 90 days horizon American Software is expected to under-perform the Aspen Technology. But the stock apears to be less risky and, when comparing its historical volatility, American Software is 1.05 times less risky than Aspen Technology. The stock trades about -0.15 of its potential returns per unit of risk. The Aspen Technology is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  22,487  in Aspen Technology on September 1, 2024 and sell it today you would earn a total of  2,513  from holding Aspen Technology or generate 11.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	36.51%
Values	Daily Returns

American Software  vs.  Aspen Technology

American Software

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Software has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Aspen Technology

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aspen Technology are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Aspen Technology may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with American Software and Aspen Technology

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

The idea behind American Software and Aspen Technology 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.