Correlation Between PACCAR and Ameriprise Financial

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

By analyzing existing cross correlation between PACCAR Inc and Ameriprise Financial, you can compare the effects of market volatilities on PACCAR and Ameriprise Financial 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 PACCAR with a short position of Ameriprise Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of PACCAR and Ameriprise Financial.

Diversification Opportunities for PACCAR and Ameriprise Financial

0.97

Correlation Coefficient

PACCAR  Ameriprise Financial

Almost no diversification

The 3 months correlation between PACCAR and Ameriprise is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and Ameriprise Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ameriprise Financial and PACCAR 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 PACCAR Inc are associated (or correlated) with Ameriprise Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ameriprise Financial has no effect on the direction of PACCAR i.e., PACCAR and Ameriprise Financial go up and down completely randomly.

Pair Corralation between PACCAR and Ameriprise Financial

Given the investment horizon of 90 days PACCAR is expected to generate 1.12 times less return on investment than Ameriprise Financial. In addition to that, PACCAR is 1.04 times more volatile than Ameriprise Financial. It trades about 0.19 of its total potential returns per unit of risk. Ameriprise Financial is currently generating about 0.22 per unit of volatility. If you would invest  43,910  in Ameriprise Financial on September 13, 2024 and sell it today you would earn a total of  11,170  from holding Ameriprise Financial or generate 25.44% return on investment over 90 days.

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

PACCAR Inc  vs.  Ameriprise Financial

PACCAR Inc

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, PACCAR reported solid returns over the last few months and may actually be approaching a breakup point.

Ameriprise Financial

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ameriprise Financial are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal primary indicators, Ameriprise Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PACCAR and Ameriprise Financial

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

The idea behind PACCAR Inc and Ameriprise Financial 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.