Correlation Between Aquarius Engines and Aerodrome

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

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

Diversification Opportunities for Aquarius Engines and Aerodrome

-0.34

Correlation Coefficient

Aquarius Engines  Aerodrome

Very good diversification

The 3 months correlation between Aquarius and Aerodrome is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Aquarius Engines AM and Aerodrome Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aerodrome Group and Aquarius Engines 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 Aquarius Engines AM are associated (or correlated) with Aerodrome. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aerodrome Group has no effect on the direction of Aquarius Engines i.e., Aquarius Engines and Aerodrome go up and down completely randomly.

Pair Corralation between Aquarius Engines and Aerodrome

Assuming the 90 days trading horizon Aquarius Engines is expected to generate 42.39 times less return on investment than Aerodrome. But when comparing it to its historical volatility, Aquarius Engines AM is 3.25 times less risky than Aerodrome. It trades about 0.01 of its potential returns per unit of risk. Aerodrome Group is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,500  in Aerodrome Group on September 26, 2024 and sell it today you would earn a total of  3,170  from holding Aerodrome Group or generate 90.57% return on investment over 90 days.

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

Aquarius Engines AM  vs.  Aerodrome Group

Aquarius Engines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aquarius Engines AM has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Aquarius Engines is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Aerodrome Group

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aerodrome Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Aerodrome sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aquarius Engines and Aerodrome

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

The idea behind Aquarius Engines AM and Aerodrome Group 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.