Correlation Between ALM Equity and Heimstaden

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

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

Diversification Opportunities for ALM Equity and Heimstaden

0.28

Correlation Coefficient

ALM Equity  Heimstaden

Modest diversification

The 3 months correlation between ALM and Heimstaden is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding ALM Equity AB and Heimstaden AB Pfd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heimstaden AB Pfd and ALM Equity 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 Equity AB are associated (or correlated) with Heimstaden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heimstaden AB Pfd has no effect on the direction of ALM Equity i.e., ALM Equity and Heimstaden go up and down completely randomly.

Pair Corralation between ALM Equity and Heimstaden

Assuming the 90 days trading horizon ALM Equity AB is expected to under-perform the Heimstaden. But the stock apears to be less risky and, when comparing its historical volatility, ALM Equity AB is 3.66 times less risky than Heimstaden. The stock trades about -0.08 of its potential returns per unit of risk. The Heimstaden AB Pfd is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,472  in Heimstaden AB Pfd on September 14, 2024 and sell it today you would earn a total of  228.00  from holding Heimstaden AB Pfd or generate 15.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

ALM Equity AB  vs.  Heimstaden AB Pfd

ALM Equity AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALM Equity AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, ALM Equity is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Heimstaden AB Pfd

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Heimstaden AB Pfd are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Heimstaden reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ALM Equity and Heimstaden

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

The idea behind ALM Equity AB and Heimstaden AB Pfd 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.