Correlation Between New Generation and American Leisure

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

By analyzing existing cross correlation between New Generation Consumer and American Leisure Holdings, you can compare the effects of market volatilities on New Generation and American Leisure 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 New Generation with a short position of American Leisure. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Generation and American Leisure.

Diversification Opportunities for New Generation and American Leisure

0.04

Correlation Coefficient

New Generation  American Leisure

Significant diversification

The 3 months correlation between New and American is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding New Generation Consumer and American Leisure Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Leisure Holdings and New Generation 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 New Generation Consumer are associated (or correlated) with American Leisure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Leisure Holdings has no effect on the direction of New Generation i.e., New Generation and American Leisure go up and down completely randomly.

Pair Corralation between New Generation and American Leisure

Given the investment horizon of 90 days New Generation is expected to generate 10.7 times less return on investment than American Leisure. But when comparing it to its historical volatility, New Generation Consumer is 2.83 times less risky than American Leisure. It trades about 0.04 of its potential returns per unit of risk. American Leisure Holdings is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  0.03  in American Leisure Holdings on September 17, 2024 and sell it today you would lose (0.02) from holding American Leisure Holdings or give up 66.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

New Generation Consumer  vs.  American Leisure Holdings

New Generation Consumer

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in New Generation Consumer are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal fundamental indicators, New Generation reported solid returns over the last few months and may actually be approaching a breakup point.

American Leisure Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Leisure Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak essential indicators, American Leisure demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with New Generation and American Leisure

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

The idea behind New Generation Consumer and American Leisure Holdings 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.