Correlation Between Masco and Alfa SAB

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

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

Diversification Opportunities for Masco and Alfa SAB

0.56

Correlation Coefficient

Masco  Alfa SAB

Very weak diversification

The 3 months correlation between Masco and Alfa is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Masco and Alfa SAB de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alfa SAB de and Masco 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 Masco are associated (or correlated) with Alfa SAB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alfa SAB de has no effect on the direction of Masco i.e., Masco and Alfa SAB go up and down completely randomly.

Pair Corralation between Masco and Alfa SAB

Assuming the 90 days trading horizon Masco is expected to generate 1.89 times less return on investment than Alfa SAB. But when comparing it to its historical volatility, Masco is 34.33 times less risky than Alfa SAB. It trades about 0.13 of its potential returns per unit of risk. Alfa SAB de is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,505  in Alfa SAB de on September 26, 2024 and sell it today you would lose (8.00) from holding Alfa SAB de or give up 0.53% of portfolio value over 90 days.

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

Masco  vs.  Alfa SAB de

Masco

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Masco are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Masco is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Alfa SAB de

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Masco and Alfa SAB

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

The idea behind Masco and Alfa SAB de 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.

Check out your portfolio center.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.