Correlation Between Commercial Vehicle and American Axle

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

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

Diversification Opportunities for Commercial Vehicle and American Axle

-0.32

Correlation Coefficient

Commercial Vehicle  American Axle

Very good diversification

The 3 months correlation between Commercial and American is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Commercial Vehicle Group and American Axle Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Axle Manufa and Commercial Vehicle 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 Commercial Vehicle Group are associated (or correlated) with American Axle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Axle Manufa has no effect on the direction of Commercial Vehicle i.e., Commercial Vehicle and American Axle go up and down completely randomly.

Pair Corralation between Commercial Vehicle and American Axle

Given the investment horizon of 90 days Commercial Vehicle Group is expected to under-perform the American Axle. In addition to that, Commercial Vehicle is 1.78 times more volatile than American Axle Manufacturing. It trades about -0.12 of its total potential returns per unit of risk. American Axle Manufacturing is currently generating about 0.04 per unit of volatility. If you would invest  643.00  in American Axle Manufacturing on August 30, 2024 and sell it today you would earn a total of  27.00  from holding American Axle Manufacturing or generate 4.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Commercial Vehicle Group  vs.  American Axle Manufacturing

Commercial Vehicle

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Commercial Vehicle Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in December 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

American Axle Manufa

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Axle Manufacturing are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with Commercial Vehicle and American Axle

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

The idea behind Commercial Vehicle Group and American Axle Manufacturing 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.

Check out your portfolio center.

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.