Correlation Between One World and American Pwr

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

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

Diversification Opportunities for One World and American Pwr

0.14

Correlation Coefficient

One World  American Pwr

Average diversification

The 3 months correlation between One and American is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding One World Universe and American Pwr Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Pwr Group and One World 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 One World Universe are associated (or correlated) with American Pwr. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Pwr Group has no effect on the direction of One World i.e., One World and American Pwr go up and down completely randomly.

Pair Corralation between One World and American Pwr

Given the investment horizon of 90 days One World is expected to generate 1.87 times less return on investment than American Pwr. But when comparing it to its historical volatility, One World Universe is 1.09 times less risky than American Pwr. It trades about 0.03 of its potential returns per unit of risk. American Pwr Group is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2.50  in American Pwr Group on September 3, 2024 and sell it today you would lose (0.99) from holding American Pwr Group or give up 39.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

One World Universe  vs.  American Pwr Group

One World Universe

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in One World Universe are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, One World showed solid returns over the last few months and may actually be approaching a breakup point.

American Pwr Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Pwr Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile technical and fundamental indicators, American Pwr demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with One World and American Pwr

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

The idea behind One World Universe and American Pwr Group 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.