Correlation Between RDD and AE

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

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

Diversification Opportunities for RDD and AE

0.0

Correlation Coefficient

RDD  AE

Pay attention - limited upside

The 3 months correlation between RDD and AE is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding RDD and AE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AE and RDD 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 RDD are associated (or correlated) with AE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AE has no effect on the direction of RDD i.e., RDD and AE go up and down completely randomly.

Pair Corralation between RDD and AE

If you would invest  2.73  in AE on September 2, 2024 and sell it today you would earn a total of  0.91  from holding AE or generate 33.33% return on investment over 90 days.

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

RDD  vs.  AE

RDD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RDD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, RDD is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

AE

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AE are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, AE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RDD and AE

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

The idea behind RDD and AE 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.