Correlation Between AMS Small and Amsterdam Commodities

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

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

Diversification Opportunities for AMS Small and Amsterdam Commodities

0.31

Correlation Coefficient

AMS Small  Amsterdam Commodities

Weak diversification

The 3 months correlation between AMS and Amsterdam is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding AMS Small Cap and Amsterdam Commodities NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amsterdam Commodities and AMS Small 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 AMS Small Cap are associated (or correlated) with Amsterdam Commodities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amsterdam Commodities has no effect on the direction of AMS Small i.e., AMS Small and Amsterdam Commodities go up and down completely randomly.

Pair Corralation between AMS Small and Amsterdam Commodities

Assuming the 90 days trading horizon AMS Small Cap is expected to under-perform the Amsterdam Commodities. In addition to that, AMS Small is 1.2 times more volatile than Amsterdam Commodities NV. It trades about -0.37 of its total potential returns per unit of risk. Amsterdam Commodities NV is currently generating about 0.23 per unit of volatility. If you would invest  1,699  in Amsterdam Commodities NV on February 5, 2024 and sell it today you would earn a total of  59.00  from holding Amsterdam Commodities NV or generate 3.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

AMS Small Cap  vs.  Amsterdam Commodities NV

Pair Trading with AMS Small and Amsterdam Commodities

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

The idea behind AMS Small Cap and Amsterdam Commodities NV 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.