Correlation Between American Public and Continental

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

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

Diversification Opportunities for American Public and Continental

0.07

Correlation Coefficient

American Public  Continental

Significant diversification

The 3 months correlation between American and Continental is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding American Public Education and Continental AG PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Continental AG PK and American Public 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 American Public Education are associated (or correlated) with Continental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Continental AG PK has no effect on the direction of American Public i.e., American Public and Continental go up and down completely randomly.

Pair Corralation between American Public and Continental

Given the investment horizon of 90 days American Public Education is expected to generate 1.36 times more return on investment than Continental. However, American Public is 1.36 times more volatile than Continental AG PK. It trades about 0.28 of its potential returns per unit of risk. Continental AG PK is currently generating about 0.02 per unit of risk. If you would invest  1,443  in American Public Education on August 17, 2024 and sell it today you would earn a total of  402.00  from holding American Public Education or generate 27.86% return on investment over 90 days.

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

American Public Education  vs.  Continental AG PK

American Public Education

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Public Education are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical and fundamental indicators, American Public demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Continental AG PK

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with American Public and Continental

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

The idea behind American Public Education and Continental AG PK 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.