Correlation Between Allient and POTOMAC

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

By analyzing existing cross correlation between Allient and POTOMAC ELEC PWR, you can compare the effects of market volatilities on Allient and POTOMAC 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 Allient with a short position of POTOMAC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allient and POTOMAC.

Diversification Opportunities for Allient and POTOMAC

-0.69

Correlation Coefficient

Allient  POTOMAC

Excellent diversification

The 3 months correlation between Allient and POTOMAC is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Allient and POTOMAC ELEC PWR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POTOMAC ELEC PWR and Allient 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 Allient are associated (or correlated) with POTOMAC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POTOMAC ELEC PWR has no effect on the direction of Allient i.e., Allient and POTOMAC go up and down completely randomly.

Pair Corralation between Allient and POTOMAC

Given the investment horizon of 90 days Allient is expected to generate 3.04 times more return on investment than POTOMAC. However, Allient is 3.04 times more volatile than POTOMAC ELEC PWR. It trades about 0.14 of its potential returns per unit of risk. POTOMAC ELEC PWR is currently generating about -0.04 per unit of risk. If you would invest  2,065  in Allient on September 2, 2024 and sell it today you would earn a total of  532.00  from holding Allient or generate 25.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	75.0%
Values	Daily Returns

Allient  vs.  POTOMAC ELEC PWR

Allient

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allient are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Allient unveiled solid returns over the last few months and may actually be approaching a breakup point.

POTOMAC ELEC PWR

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Allient and POTOMAC

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

The idea behind Allient and POTOMAC ELEC PWR 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.