Correlation Between AE and Marlin

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

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

Diversification Opportunities for AE and Marlin

0.61

Correlation Coefficient

AE  Marlin

Poor diversification

The 3 months correlation between AE and Marlin is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding AE and Marlin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marlin and AE 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 AE are associated (or correlated) with Marlin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marlin has no effect on the direction of AE i.e., AE and Marlin go up and down completely randomly.

Pair Corralation between AE and Marlin

Assuming the 90 days horizon AE is expected to generate 1.22 times more return on investment than Marlin. However, AE is 1.22 times more volatile than Marlin. It trades about 0.07 of its potential returns per unit of risk. Marlin is currently generating about -0.26 per unit of risk. If you would invest  3.96  in AE on January 29, 2024 and sell it today you would earn a total of  0.24  from holding AE or generate 6.06% return on investment over 90 days.

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

AE  vs.  Marlin

AE

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AE are ranked lower than 12 (%) 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.

Marlin

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with AE and Marlin

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

The idea behind AE and Marlin 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 Transaction History module to view history of all your transactions and understand their impact on performance.