Correlation Between AE and SLS
Can any of the company-specific risk be diversified away by investing in both AE and SLS 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 SLS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AE and SLS, you can compare the effects of market volatilities on AE and SLS 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 SLS. Check out your portfolio center. Please also check ongoing floating volatility patterns of AE and SLS.
Diversification Opportunities for AE and SLS
Excellent diversification
The 3 months correlation between AE and SLS is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding AE and SLS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SLS 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 SLS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SLS has no effect on the direction of AE i.e., AE and SLS go up and down completely randomly.
Pair Corralation between AE and SLS
Assuming the 90 days horizon AE is expected to under-perform the SLS. In addition to that, AE is 4.47 times more volatile than SLS. It trades about -0.13 of its total potential returns per unit of risk. SLS is currently generating about 0.21 per unit of volatility. If you would invest 1,184 in SLS on April 24, 2025 and sell it today you would earn a total of 315.00 from holding SLS or generate 26.6% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Weak |
Accuracy | 98.46% |
Values | Daily Returns |
AE vs. SLS
Performance |
Timeline |
AE |
SLS |
AE and SLS Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with AE and SLS
The main advantage of trading using opposite AE and SLS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AE position performs unexpectedly, SLS 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 SLS will offset losses from the drop in SLS's long position.The idea behind AE and SLS 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.Check out your portfolio center.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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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