Correlation Between ALK Abell and FLSmidth

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

By analyzing existing cross correlation between ALK Abell AS and FLSmidth Co, you can compare the effects of market volatilities on ALK Abell and FLSmidth 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 ALK Abell with a short position of FLSmidth. Check out your portfolio center. Please also check ongoing floating volatility patterns of ALK Abell and FLSmidth.

Diversification Opportunities for ALK Abell and FLSmidth

-0.67

Correlation Coefficient

ALK Abell  FLSmidth

Excellent diversification

The 3 months correlation between ALK and FLSmidth is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding ALK Abell AS and FLSmidth Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FLSmidth and ALK Abell 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 ALK Abell AS are associated (or correlated) with FLSmidth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FLSmidth has no effect on the direction of ALK Abell i.e., ALK Abell and FLSmidth go up and down completely randomly.

Pair Corralation between ALK Abell and FLSmidth

Assuming the 90 days trading horizon ALK Abell AS is expected to under-perform the FLSmidth. In addition to that, ALK Abell is 1.34 times more volatile than FLSmidth Co. It trades about -0.06 of its total potential returns per unit of risk. FLSmidth Co is currently generating about 0.12 per unit of volatility. If you would invest  34,280  in FLSmidth Co on September 2, 2024 and sell it today you would earn a total of  4,240  from holding FLSmidth Co or generate 12.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

ALK Abell AS  vs.  FLSmidth Co

ALK Abell AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALK Abell AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

FLSmidth

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FLSmidth Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, FLSmidth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ALK Abell and FLSmidth

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

The idea behind ALK Abell AS and FLSmidth Co 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.