Correlation Between American Axle and Sea

Can any of the company-specific risk be diversified away by investing in both American Axle and Sea 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 Sea 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 Sea, you can compare the effects of market volatilities on American Axle and Sea 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 Sea. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Axle and Sea.

Diversification Opportunities for American Axle and Sea

0.6

Correlation Coefficient

American Axle  Sea

Poor diversification

The 3 months correlation between American and Sea is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding American Axle Manufacturing and Sea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea 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 Sea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea has no effect on the direction of American Axle i.e., American Axle and Sea go up and down completely randomly.

Pair Corralation between American Axle and Sea

Considering the 90-day investment horizon American Axle Manufacturing is expected to under-perform the Sea. In addition to that, American Axle is 1.03 times more volatile than Sea. It trades about -0.05 of its total potential returns per unit of risk. Sea is currently generating about 0.17 per unit of volatility. If you would invest  4,050  in Sea on September 24, 2024 and sell it today you would earn a total of  6,863  from holding Sea or generate 169.46% return on investment over 90 days.

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

American Axle Manufacturing  vs.  Sea

American Axle Manufa

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Axle Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, American Axle is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Sea

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Axle and Sea

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

The idea behind American Axle Manufacturing and Sea 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.