Correlation Between AMS Small and Aalberts Industries

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

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

Diversification Opportunities for AMS Small and Aalberts Industries

0.14

Correlation Coefficient

AMS Small  Aalberts Industries

Average diversification

The 3 months correlation between AMS and Aalberts is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding AMS Small Cap and Aalberts Industries NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aalberts Industries and AMS Small 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 AMS Small Cap are associated (or correlated) with Aalberts Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aalberts Industries has no effect on the direction of AMS Small i.e., AMS Small and Aalberts Industries go up and down completely randomly.

Pair Corralation between AMS Small and Aalberts Industries

Assuming the 90 days trading horizon AMS Small is expected to generate 1.24 times less return on investment than Aalberts Industries. But when comparing it to its historical volatility, AMS Small Cap is 1.85 times less risky than Aalberts Industries. It trades about 0.09 of its potential returns per unit of risk. Aalberts Industries NV is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,422  in Aalberts Industries NV on September 5, 2024 and sell it today you would earn a total of  222.00  from holding Aalberts Industries NV or generate 6.49% return on investment over 90 days.

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

AMS Small Cap  vs.  Aalberts Industries NV

Pair Trading with AMS Small and Aalberts Industries

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

The idea behind AMS Small Cap and Aalberts Industries NV 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.