Correlation Between Madison Diversified and Aam Select

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

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

Diversification Opportunities for Madison Diversified and Aam Select

0.85

Correlation Coefficient

Madison Diversified  Aam Select

Very poor diversification

The 3 months correlation between Madison and Aam is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Madison Diversified Income and Aam Select Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aam Select Income and Madison Diversified 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 Madison Diversified Income are associated (or correlated) with Aam Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aam Select Income has no effect on the direction of Madison Diversified i.e., Madison Diversified and Aam Select go up and down completely randomly.

Pair Corralation between Madison Diversified and Aam Select

Assuming the 90 days horizon Madison Diversified Income is expected to generate 1.02 times more return on investment than Aam Select. However, Madison Diversified is 1.02 times more volatile than Aam Select Income. It trades about 0.18 of its potential returns per unit of risk. Aam Select Income is currently generating about 0.17 per unit of risk. If you would invest  1,240  in Madison Diversified Income on May 5, 2025 and sell it today you would earn a total of  45.00  from holding Madison Diversified Income or generate 3.63% return on investment over 90 days.

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

Madison Diversified Income  vs.  Aam Select Income

Madison Diversified

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Diversified Income are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Madison Diversified is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Aam Select Income

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aam Select Income are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Aam Select is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Madison Diversified and Aam Select

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

The idea behind Madison Diversified Income and Aam Select Income 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.