Correlation Between Alger Small and Alger Ai

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

By analyzing existing cross correlation between Alger Small Cap and Alger Ai Enablers, you can compare the effects of market volatilities on Alger Small and Alger Ai 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 Alger Small with a short position of Alger Ai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alger Small and Alger Ai.

Diversification Opportunities for Alger Small and Alger Ai

0.85

Correlation Coefficient

Alger Small  Alger Ai

Very poor diversification

The 3 months correlation between Alger and Alger is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Alger Small Cap and Alger Ai Enablers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alger Ai Enablers and Alger Small 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 Alger Small Cap are associated (or correlated) with Alger Ai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alger Ai Enablers has no effect on the direction of Alger Small i.e., Alger Small and Alger Ai go up and down completely randomly.

Pair Corralation between Alger Small and Alger Ai

Assuming the 90 days horizon Alger Small is expected to generate 1.05 times less return on investment than Alger Ai. In addition to that, Alger Small is 1.14 times more volatile than Alger Ai Enablers. It trades about 0.24 of its total potential returns per unit of risk. Alger Ai Enablers is currently generating about 0.28 per unit of volatility. If you would invest  1,061  in Alger Ai Enablers on September 3, 2024 and sell it today you would earn a total of  254.00  from holding Alger Ai Enablers or generate 23.94% return on investment over 90 days.

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

Alger Small Cap  vs.  Alger Ai Enablers

Alger Small Cap

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alger Small Cap are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Alger Small showed solid returns over the last few months and may actually be approaching a breakup point.

Alger Ai Enablers

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alger Ai Enablers are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Alger Ai showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alger Small and Alger Ai

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

The idea behind Alger Small Cap and Alger Ai Enablers 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.