Correlation Between American Axle and Aeva Technologies

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

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

Diversification Opportunities for American Axle and Aeva Technologies

-0.69

Correlation Coefficient

American Axle  Aeva Technologies

Excellent diversification

The 3 months correlation between American and Aeva is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding American Axle Manufacturing and Aeva Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aeva Technologies and American Axle 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 Axle Manufacturing are associated (or correlated) with Aeva Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aeva Technologies has no effect on the direction of American Axle i.e., American Axle and Aeva Technologies go up and down completely randomly.

Pair Corralation between American Axle and Aeva Technologies

Considering the 90-day investment horizon American Axle Manufacturing is expected to generate 0.41 times more return on investment than Aeva Technologies. However, American Axle Manufacturing is 2.41 times less risky than Aeva Technologies. It trades about -0.02 of its potential returns per unit of risk. Aeva Technologies is currently generating about -0.06 per unit of risk. If you would invest  762.00  in American Axle Manufacturing on March 11, 2024 and sell it today you would lose (9.00) from holding American Axle Manufacturing or give up 1.18% of portfolio value over 90 days.

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

American Axle Manufacturing  vs.  Aeva Technologies

American Axle Manufa

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Axle Manufacturing are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal basic indicators, American Axle disclosed solid returns over the last few months and may actually be approaching a breakup point.

Aeva Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aeva Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with American Axle and Aeva Technologies

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

The idea behind American Axle Manufacturing and Aeva Technologies 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.