Correlation Between Selected American and Aston Montag

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

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

Diversification Opportunities for Selected American and Aston Montag

0.87

Correlation Coefficient

Selected American  Aston Montag

Very poor diversification

The 3 months correlation between Selected and Aston is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Selected American Shares and Aston Montag Caldwell in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aston Montag Caldwell and Selected American 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 Selected American Shares are associated (or correlated) with Aston Montag. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aston Montag Caldwell has no effect on the direction of Selected American i.e., Selected American and Aston Montag go up and down completely randomly.

Pair Corralation between Selected American and Aston Montag

Assuming the 90 days horizon Selected American Shares is expected to generate 1.12 times more return on investment than Aston Montag. However, Selected American is 1.12 times more volatile than Aston Montag Caldwell. It trades about 0.16 of its potential returns per unit of risk. Aston Montag Caldwell is currently generating about 0.12 per unit of risk. If you would invest  4,032  in Selected American Shares on September 12, 2024 and sell it today you would earn a total of  372.00  from holding Selected American Shares or generate 9.23% return on investment over 90 days.

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

Selected American Shares  vs.  Aston Montag Caldwell

Selected American Shares

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Selected American Shares are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Selected American may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Aston Montag Caldwell

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aston Montag Caldwell are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Aston Montag is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Selected American and Aston Montag

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

The idea behind Selected American Shares and Aston Montag Caldwell 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.