Can any of the company-specific risk be diversified away by investing in both Adient PLC and Standard 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 Adient PLC and Standard into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Adient PLC and Standard Motor Products, you can compare the effects of market volatilities on Adient PLC and Standard 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 Adient PLC with a short position of Standard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adient PLC and Standard.
Diversification Opportunities for Adient PLC and Standard
The 3 months correlation between Adient and Standard is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Adient PLC and Standard Motor Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Motor Products and Adient PLC 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 Adient PLC are associated (or correlated) with Standard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Motor Products has no effect on the direction of Adient PLC i.e., Adient PLC and Standard go up and down completely randomly.
Given the investment horizon of 90 days Adient PLC is expected to generate 1.21 times more return on investment than Standard. However, Adient PLC is 1.21 times more volatile than Standard Motor Products. It trades about 0.0 of its potential returns per unit of risk. Standard Motor Products is currently generating about -0.2 per unit of risk. If you would invest 2,812 in Adient PLC on March 6, 2024 and sell it today you would lose (3.00) from holding Adient PLC or give up 0.11% of portfolio value over 90 days.
Over the last 90 days Adient PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in July 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.
Over the last 90 days Standard Motor Products has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable primary indicators, Standard is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.