Correlation Between AXT and Heritage Insurance

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

By analyzing existing cross correlation between AXT Inc and Heritage Insurance Hldgs, you can compare the effects of market volatilities on AXT and Heritage Insurance 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 AXT with a short position of Heritage Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of AXT and Heritage Insurance.

Diversification Opportunities for AXT and Heritage Insurance

0.29

Correlation Coefficient

AXT  Heritage Insurance

Modest diversification

The 3 months correlation between AXT and Heritage is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding AXT Inc and Heritage Insurance Hldgs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Insurance Hldgs and AXT 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 AXT Inc are associated (or correlated) with Heritage Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Insurance Hldgs has no effect on the direction of AXT i.e., AXT and Heritage Insurance go up and down completely randomly.

Pair Corralation between AXT and Heritage Insurance

Given the investment horizon of 90 days AXT Inc is expected to generate 1.86 times more return on investment than Heritage Insurance. However, AXT is 1.86 times more volatile than Heritage Insurance Hldgs. It trades about 0.09 of its potential returns per unit of risk. Heritage Insurance Hldgs is currently generating about 0.06 per unit of risk. If you would invest  210.00  in AXT Inc on February 12, 2024 and sell it today you would earn a total of  151.00  from holding AXT Inc or generate 71.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.2%
Values	Daily Returns

AXT Inc  vs.  Heritage Insurance Hldgs

AXT Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AXT Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, AXT demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Heritage Insurance Hldgs

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Insurance Hldgs are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Heritage Insurance reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AXT and Heritage Insurance

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

The idea behind AXT Inc and Heritage Insurance Hldgs 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.