Correlation Between Aspen Technology and XWC

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Can any of the company-specific risk be diversified away by investing in both Aspen Technology and XWC 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 Aspen Technology and XWC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aspen Technology and XWC, you can compare the effects of market volatilities on Aspen Technology and XWC 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 Aspen Technology with a short position of XWC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aspen Technology and XWC.

Diversification Opportunities for Aspen Technology and XWC

0.07
  Correlation Coefficient

Significant diversification

The 3 months correlation between Aspen and XWC is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Aspen Technology and XWC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XWC and Aspen Technology 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 Aspen Technology are associated (or correlated) with XWC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XWC has no effect on the direction of Aspen Technology i.e., Aspen Technology and XWC go up and down completely randomly.

Pair Corralation between Aspen Technology and XWC

Given the investment horizon of 90 days Aspen Technology is expected to generate 0.21 times more return on investment than XWC. However, Aspen Technology is 4.76 times less risky than XWC. It trades about 0.06 of its potential returns per unit of risk. XWC is currently generating about 0.01 per unit of risk. If you would invest  23,301  in Aspen Technology on September 5, 2022 and sell it today you would earn a total of  698.00  from holding Aspen Technology or generate 3.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Aspen Technology  vs.  XWC

 Performance (%) 
       Timeline  
Aspen Technology 
Aspen Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Aspen Technology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Aspen Technology disclosed solid returns over the last few months and may actually be approaching a breakup point.

Aspen Price Channel

XWC 
XWC Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in XWC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, XWC sustained solid returns over the last few months and may actually be approaching a breakup point.

XWC Price Channel

Aspen Technology and XWC Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Aspen Technology and XWC

The main advantage of trading using opposite Aspen Technology and XWC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aspen Technology position performs unexpectedly, XWC 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 XWC will offset losses from the drop in XWC's long position.
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The idea behind Aspen Technology and XWC 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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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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