Correlation Between Alumil Rom and Societatea Energetica

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

By analyzing existing cross correlation between Alumil Rom Industry and Societatea Energetica Electrica, you can compare the effects of market volatilities on Alumil Rom and Societatea Energetica 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 Alumil Rom with a short position of Societatea Energetica. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alumil Rom and Societatea Energetica.

Diversification Opportunities for Alumil Rom and Societatea Energetica

0.64

Correlation Coefficient

Alumil Rom  Societatea Energetica

Poor diversification

The 3 months correlation between Alumil and Societatea is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Alumil Rom Industry and Societatea Energetica Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Societatea Energetica and Alumil Rom 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 Alumil Rom Industry are associated (or correlated) with Societatea Energetica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Societatea Energetica has no effect on the direction of Alumil Rom i.e., Alumil Rom and Societatea Energetica go up and down completely randomly.

Pair Corralation between Alumil Rom and Societatea Energetica

Assuming the 90 days trading horizon Alumil Rom Industry is expected to generate 1.35 times more return on investment than Societatea Energetica. However, Alumil Rom is 1.35 times more volatile than Societatea Energetica Electrica. It trades about -0.02 of its potential returns per unit of risk. Societatea Energetica Electrica is currently generating about -0.04 per unit of risk. If you would invest  285.00  in Alumil Rom Industry on September 12, 2024 and sell it today you would lose (14.00) from holding Alumil Rom Industry or give up 4.91% of portfolio value over 90 days.

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

Alumil Rom Industry  vs.  Societatea Energetica Electric

Alumil Rom Industry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alumil Rom Industry has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Alumil Rom is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Societatea Energetica

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Societatea Energetica Electrica has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Societatea Energetica is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Alumil Rom and Societatea Energetica

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

The idea behind Alumil Rom Industry and Societatea Energetica Electrica 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.