Correlation Between Core and AE

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

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

Diversification Opportunities for Core and AE

0.82

Correlation Coefficient

Core  AE

Very poor diversification

The 3 months correlation between Core and AE is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Core and AE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AE and Core 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 Core 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 Core i.e., Core and AE go up and down completely randomly.

Pair Corralation between Core and AE

Assuming the 90 days trading horizon Core is expected to generate 0.6 times more return on investment than AE. However, Core is 1.66 times less risky than AE. It trades about -0.04 of its potential returns per unit of risk. AE is currently generating about -0.13 per unit of risk. If you would invest  73.00  in Core on April 24, 2025 and sell it today you would lose (13.00) from holding Core or give up 17.81% of portfolio value over 90 days.

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

Core  vs.  AE

Core

Risk-Adjusted Performance

Very Weak

Over the last 90 days Core has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Crypto's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for Core shareholders.

AE

Risk-Adjusted Performance

Very Weak

Over the last 90 days AE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's fundamental indicators remain rather sound which may send shares a bit higher in August 2025. The latest tumult may also be a sign of longer-term up-swing for AE shareholders.

Pair Trading with Core and AE

The main advantage of trading using opposite Core and AE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Core 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 Core 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.