Correlation Between American Axle and ECD Automotive

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

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

Diversification Opportunities for American Axle and ECD Automotive

-0.36

Correlation Coefficient

American Axle  ECD Automotive

Very good diversification

The 3 months correlation between American and ECD is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding American Axle Manufacturing and ECD Automotive Design in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECD Automotive Design and American Axle 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 Axle Manufacturing are associated (or correlated) with ECD Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECD Automotive Design has no effect on the direction of American Axle i.e., American Axle and ECD Automotive go up and down completely randomly.

Pair Corralation between American Axle and ECD Automotive

Considering the 90-day investment horizon American Axle is expected to generate 4.99 times less return on investment than ECD Automotive. But when comparing it to its historical volatility, American Axle Manufacturing is 7.52 times less risky than ECD Automotive. It trades about 0.08 of its potential returns per unit of risk. ECD Automotive Design is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1.90  in ECD Automotive Design on September 5, 2024 and sell it today you would lose (0.25) from holding ECD Automotive Design or give up 13.16% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	29.69%
Values	Daily Returns

American Axle Manufacturing  vs.  ECD Automotive Design

American Axle Manufa

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Axle Manufacturing are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile basic indicators, American Axle disclosed solid returns over the last few months and may actually be approaching a breakup point.

ECD Automotive Design

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days ECD Automotive Design has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly conflicting basic indicators, ECD Automotive showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Axle and ECD Automotive

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

The idea behind American Axle Manufacturing and ECD Automotive Design 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.