Can any of the company-specific risk be diversified away by investing in both 00108WAF7 and Keurig Dr 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 00108WAF7 and Keurig Dr into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AEP TEX INC and Keurig Dr Pepper, you can compare the effects of market volatilities on 00108WAF7 and Keurig Dr 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 00108WAF7 with a short position of Keurig Dr. Check out your portfolio center. Please also check ongoing floating volatility patterns of 00108WAF7 and Keurig Dr.
Diversification Opportunities for 00108WAF7 and Keurig Dr
The 3 months correlation between 00108WAF7 and Keurig is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding AEP TEX INC and Keurig Dr Pepper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Keurig Dr Pepper and 00108WAF7 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 AEP TEX INC are associated (or correlated) with Keurig Dr. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Keurig Dr Pepper has no effect on the direction of 00108WAF7 i.e., 00108WAF7 and Keurig Dr go up and down completely randomly.
Assuming the 90 days trading horizon 00108WAF7 is expected to generate 2.48 times less return on investment than Keurig Dr. In addition to that, 00108WAF7 is 1.79 times more volatile than Keurig Dr Pepper. It trades about 0.06 of its total potential returns per unit of risk. Keurig Dr Pepper is currently generating about 0.25 per unit of volatility. If you would invest 3,077 in Keurig Dr Pepper on March 6, 2024 and sell it today you would earn a total of 360.00 from holding Keurig Dr Pepper or generate 11.7% return on investment over 90 days.
Over the last 90 days AEP TEX INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 00108WAF7 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Keurig Dr Pepper are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain fundamental indicators, Keurig Dr reported solid returns over the last few months and may actually be approaching a breakup point.