Correlation Between AXT and Annaly Capital

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

By analyzing existing cross correlation between AXT Inc and Annaly Capital Management, you can compare the effects of market volatilities on AXT and Annaly Capital 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 Annaly Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of AXT and Annaly Capital.

Diversification Opportunities for AXT and Annaly Capital

0.18

Correlation Coefficient

AXT  Annaly Capital

Average diversification

The 3 months correlation between AXT and Annaly is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding AXT Inc and Annaly Capital Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Annaly Capital Management 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 Annaly Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Annaly Capital Management has no effect on the direction of AXT i.e., AXT and Annaly Capital go up and down completely randomly.

Pair Corralation between AXT and Annaly Capital

Given the investment horizon of 90 days AXT is expected to generate 1.41 times less return on investment than Annaly Capital. In addition to that, AXT is 16.54 times more volatile than Annaly Capital Management. It trades about 0.01 of its total potential returns per unit of risk. Annaly Capital Management is currently generating about 0.13 per unit of volatility. If you would invest  2,509  in Annaly Capital Management on February 11, 2024 and sell it today you would earn a total of  26.00  from holding Annaly Capital Management or generate 1.04% return on investment over 90 days.

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

AXT Inc  vs.  Annaly Capital Management

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 conflicting basic indicators, AXT demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Annaly Capital Management

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Annaly Capital Management are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Annaly Capital is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with AXT and Annaly Capital

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

The idea behind AXT Inc and Annaly Capital Management 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.