Correlation Between ALM Classic and R Co

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

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

Diversification Opportunities for ALM Classic and R Co

0.83

Correlation Coefficient

ALM Classic  R Co

Very poor diversification

The 3 months correlation between ALM and 0P00017SX2 is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding ALM Classic RA and R co Valor F in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on R co Valor and ALM Classic 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 Classic RA are associated (or correlated) with R Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of R co Valor has no effect on the direction of ALM Classic i.e., ALM Classic and R Co go up and down completely randomly.

Pair Corralation between ALM Classic and R Co

Assuming the 90 days trading horizon ALM Classic is expected to generate 1.2 times less return on investment than R Co. But when comparing it to its historical volatility, ALM Classic RA is 2.11 times less risky than R Co. It trades about 0.45 of its potential returns per unit of risk. R co Valor F is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  302,159  in R co Valor F on September 10, 2024 and sell it today you would earn a total of  6,070  from holding R co Valor F or generate 2.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.0%
Values	Daily Returns

ALM Classic RA  vs.  R co Valor F

ALM Classic RA

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ALM Classic RA are ranked lower than 19 (%) 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 current stock price disturbance, may contribute to short-term losses for the investors.

R co Valor

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in R co Valor F are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat fragile basic indicators, R Co may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ALM Classic and R Co

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

The idea behind ALM Classic RA and R co Valor F 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.