Correlation Between United States and A O

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

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

Diversification Opportunities for United States and A O

0.22

Correlation Coefficient

United States  A O

Modest diversification

The 3 months correlation between United and AOS is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and A O Smith in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on A O Smith and United States 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 United States Steel are associated (or correlated) with A O. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of A O Smith has no effect on the direction of United States i.e., United States and A O go up and down completely randomly.

Pair Corralation between United States and A O

Given the investment horizon of 90 days United States Steel is expected to under-perform the A O. In addition to that, United States is 863.97 times more volatile than A O Smith. It trades about -0.03 of its total potential returns per unit of risk. A O Smith is currently generating about 0.14 per unit of volatility. If you would invest  119,166  in A O Smith on September 28, 2024 and sell it today you would earn a total of  34.00  from holding A O Smith or generate 0.03% return on investment over 90 days.

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

United States Steel  vs.  A O Smith

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, United States is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

A O Smith

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in A O Smith are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, A O is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with United States and A O

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

The idea behind United States Steel and A O Smith 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.