Correlation Between BEKA LUX and ALM Classic

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

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

Diversification Opportunities for BEKA LUX and ALM Classic

0.85

Correlation Coefficient

BEKA LUX  ALM Classic

Very poor diversification

The 3 months correlation between BEKA and ALM is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding BEKA LUX SICAV 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 BEKA LUX 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 BEKA LUX SICAV 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 BEKA LUX i.e., BEKA LUX and ALM Classic go up and down completely randomly.

Pair Corralation between BEKA LUX and ALM Classic

Assuming the 90 days trading horizon BEKA LUX is expected to generate 1.27 times less return on investment than ALM Classic. In addition to that, BEKA LUX is 1.07 times more volatile than ALM Classic RA. It trades about 0.17 of its total potential returns per unit of risk. ALM Classic RA is currently generating about 0.24 per unit of volatility. If you would invest  36,870  in ALM Classic RA on September 6, 2024 and sell it today you would earn a total of  1,238  from holding ALM Classic RA or generate 3.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

BEKA LUX SICAV  vs.  ALM Classic RA

BEKA LUX SICAV

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BEKA LUX SICAV are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of very healthy basic indicators, BEKA LUX is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

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 current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BEKA LUX and ALM Classic

The main advantage of trading using opposite BEKA LUX and ALM Classic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BEKA LUX 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 BEKA LUX SICAV 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.