Correlation Between Potash America and Aerius International

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

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

Diversification Opportunities for Potash America and Aerius International

-0.04

Correlation Coefficient

Potash America  Aerius International

Good diversification

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

Pair Corralation between Potash America and Aerius International

Given the investment horizon of 90 days Potash America is expected to generate 2.14 times less return on investment than Aerius International. But when comparing it to its historical volatility, Potash America is 2.95 times less risky than Aerius International. It trades about 0.08 of its potential returns per unit of risk. Aerius International is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  0.24  in Aerius International on August 31, 2024 and sell it today you would lose (0.07) from holding Aerius International or give up 29.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Potash America  vs.  Aerius International

Potash America

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Potash America are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Potash America displayed solid returns over the last few months and may actually be approaching a breakup point.

Aerius International

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aerius International are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Aerius International unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Potash America and Aerius International

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

The idea behind Potash America and Aerius International 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.