Correlation Between ALM Equity and KABE Group

Can any of the company-specific risk be diversified away by investing in both ALM Equity and KABE Group 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 KABE Group 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 KABE Group AB, you can compare the effects of market volatilities on ALM Equity and KABE Group 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 KABE Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of ALM Equity and KABE Group.

Diversification Opportunities for ALM Equity and KABE Group

0.49

Correlation Coefficient

ALM Equity  KABE Group

Very weak diversification

The 3 months correlation between ALM and KABE is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding ALM Equity AB and KABE Group AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KABE Group AB 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 KABE Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KABE Group AB has no effect on the direction of ALM Equity i.e., ALM Equity and KABE Group go up and down completely randomly.

Pair Corralation between ALM Equity and KABE Group

Assuming the 90 days trading horizon ALM Equity AB is expected to under-perform the KABE Group. But the stock apears to be less risky and, when comparing its historical volatility, ALM Equity AB is 2.91 times less risky than KABE Group. The stock trades about -0.14 of its potential returns per unit of risk. The KABE Group AB is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  30,710  in KABE Group AB on September 13, 2024 and sell it today you would lose (910.00) from holding KABE Group AB or give up 2.96% of portfolio value over 90 days.

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

ALM Equity AB  vs.  KABE Group AB

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.

KABE Group AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KABE Group AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, KABE Group is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ALM Equity and KABE Group

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

The idea behind ALM Equity AB and KABE Group AB 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..