Correlation Between ECD Automotive and American Axle

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

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

Diversification Opportunities for ECD Automotive and American Axle

-0.36

Correlation Coefficient

ECD Automotive  American Axle

Very good diversification

The 3 months correlation between ECD and American is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding ECD Automotive Design 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 ECD Automotive 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 ECD Automotive Design 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 ECD Automotive i.e., ECD Automotive and American Axle go up and down completely randomly.

Pair Corralation between ECD Automotive and American Axle

Assuming the 90 days horizon ECD Automotive Design is expected to under-perform the American Axle. In addition to that, ECD Automotive is 7.09 times more volatile than American Axle Manufacturing. It trades about -0.05 of its total potential returns per unit of risk. American Axle Manufacturing is currently generating about 0.25 per unit of volatility. If you would invest  580.00  in American Axle Manufacturing on September 5, 2024 and sell it today you would earn a total of  97.00  from holding American Axle Manufacturing or generate 16.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	31.82%
Values	Daily Returns

ECD Automotive Design  vs.  American Axle Manufacturing

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.

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.

Pair Trading with ECD Automotive and American Axle

The main advantage of trading using opposite ECD Automotive and American Axle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ECD Automotive 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 ECD Automotive Design 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.

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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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.