Correlation Between ALM Offensif and ALM Classic

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

By analyzing existing cross correlation between ALM Offensif and ALM Classic RA, you can compare the effects of market volatilities on ALM Offensif and ALM Classic 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 ALM Offensif with a short position of ALM Classic. Check out your portfolio center. Please also check ongoing floating volatility patterns of ALM Offensif and ALM Classic.

Diversification Opportunities for ALM Offensif and ALM Classic

0.98

Correlation Coefficient

ALM Offensif  ALM Classic

Almost no diversification

The 3 months correlation between ALM and ALM is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding ALM Offensif and ALM Classic RA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALM Classic RA and ALM Offensif 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 ALM Offensif are associated (or correlated) with ALM Classic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALM Classic RA has no effect on the direction of ALM Offensif i.e., ALM Offensif and ALM Classic go up and down completely randomly.

Pair Corralation between ALM Offensif and ALM Classic

Assuming the 90 days trading horizon ALM Offensif is expected to generate 2.15 times more return on investment than ALM Classic. However, ALM Offensif is 2.15 times more volatile than ALM Classic RA. It trades about 0.22 of its potential returns per unit of risk. ALM Classic RA is currently generating about 0.24 per unit of risk. If you would invest  30,320  in ALM Offensif on September 11, 2024 and sell it today you would earn a total of  1,951  from holding ALM Offensif or generate 6.43% return on investment over 90 days.

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

ALM Offensif  vs.  ALM Classic RA

ALM Offensif

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ALM Offensif are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat unfluctuating basic indicators, ALM Offensif may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ALM Classic RA

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ALM Classic RA are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat strong basic indicators, ALM Classic is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ALM Offensif and ALM Classic

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

The idea behind ALM Offensif and ALM Classic RA 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.