Correlation Between Kennametal and Axcella Health

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

Diversification Opportunities for Kennametal and Axcella Health

-0.72
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Kennametal and Axcella is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Kennametal and Axcella Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axcella Health and Kennametal 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 Kennametal are associated (or correlated) with Axcella Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axcella Health has no effect on the direction of Kennametal i.e., Kennametal and Axcella Health go up and down completely randomly.

Pair Corralation between Kennametal and Axcella Health

Considering the 90-day investment horizon Kennametal is expected to generate 0.39 times more return on investment than Axcella Health. However, Kennametal is 2.59 times less risky than Axcella Health. It trades about 0.09 of its potential returns per unit of risk. Axcella Health is currently generating about -0.13 per unit of risk. If you would invest  2,306  in Kennametal on September 5, 2022 and sell it today you would earn a total of  346.00  from holding Kennametal or generate 15.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy98.46%
ValuesDaily Returns

Kennametal  vs.  Axcella Health

 Performance (%) 
       Timeline  
Kennametal 
Kennametal Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Kennametal are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak primary indicators, Kennametal unveiled solid returns over the last few months and may actually be approaching a breakup point.

Kennametal Price Channel

Axcella Health 
Axcella Performance
0 of 100
Over the last 90 days Axcella Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in January 2023. The current disturbance may also be a sign of long term up-swing for the company investors.

Axcella Price Channel

Kennametal and Axcella Health Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Kennametal and Axcella Health

The main advantage of trading using opposite Kennametal and Axcella Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kennametal position performs unexpectedly, Axcella Health 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 Axcella Health will offset losses from the drop in Axcella Health's long position.
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The idea behind Kennametal and Axcella Health 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 Analyst Recommendations module to analyst recommendations and target price estimates broken down by several categories.

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