Correlation Between Alumindo Light and Communication Cable

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

By analyzing existing cross correlation between Alumindo Light Metal and Communication Cable Systems, you can compare the effects of market volatilities on Alumindo Light and Communication Cable 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 Alumindo Light with a short position of Communication Cable. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alumindo Light and Communication Cable.

Diversification Opportunities for Alumindo Light and Communication Cable

-0.25

Correlation Coefficient

Alumindo Light  Communication Cable

Very good diversification

The 3 months correlation between Alumindo and Communication is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Alumindo Light Metal and Communication Cable Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Communication Cable and Alumindo Light 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 Alumindo Light Metal are associated (or correlated) with Communication Cable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Communication Cable has no effect on the direction of Alumindo Light i.e., Alumindo Light and Communication Cable go up and down completely randomly.

Pair Corralation between Alumindo Light and Communication Cable

Assuming the 90 days trading horizon Alumindo Light Metal is expected to generate 0.71 times more return on investment than Communication Cable. However, Alumindo Light Metal is 1.41 times less risky than Communication Cable. It trades about 0.08 of its potential returns per unit of risk. Communication Cable Systems is currently generating about -0.04 per unit of risk. If you would invest  6,600  in Alumindo Light Metal on September 19, 2024 and sell it today you would earn a total of  800.00  from holding Alumindo Light Metal or generate 12.12% return on investment over 90 days.

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

Alumindo Light Metal  vs.  Communication Cable Systems

Alumindo Light Metal

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alumindo Light Metal are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Alumindo Light disclosed solid returns over the last few months and may actually be approaching a breakup point.

Communication Cable

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Communication Cable Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Alumindo Light and Communication Cable

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

The idea behind Alumindo Light Metal and Communication Cable Systems 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.