Correlation Between ALM ES and ALM Classic

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

By analyzing existing cross correlation between ALM ES Actions and ALM Classic RA, you can compare the effects of market volatilities on ALM ES and ALM Classic 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 ALM ES with a short position of ALM Classic. Check out your portfolio center. Please also check ongoing floating volatility patterns of ALM ES and ALM Classic.

Diversification Opportunities for ALM ES and ALM Classic

0.81

Correlation Coefficient

ALM ES  ALM Classic

Very poor diversification

The 3 months correlation between ALM and ALM is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding ALM ES Actions and ALM Classic RA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALM Classic RA and ALM ES 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 ALM ES Actions are associated (or correlated) with ALM Classic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALM Classic RA has no effect on the direction of ALM ES i.e., ALM ES and ALM Classic go up and down completely randomly.

Pair Corralation between ALM ES and ALM Classic

Assuming the 90 days trading horizon ALM ES Actions is expected to under-perform the ALM Classic. In addition to that, ALM ES is 3.19 times more volatile than ALM Classic RA. It trades about -0.13 of its total potential returns per unit of risk. ALM Classic RA is currently generating about -0.03 per unit of volatility. If you would invest  37,992  in ALM Classic RA on December 25, 2024 and sell it today you would lose (198.00) from holding ALM Classic RA or give up 0.52% of portfolio value over 90 days.

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

ALM ES Actions  vs.  ALM Classic RA

ALM ES Actions

Risk-Adjusted Performance

Very Weak

Over the last 90 days ALM ES Actions has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest unsteady performance, the Fund's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the fund investors.

ALM Classic RA

Risk-Adjusted Performance

Very Weak

Over the last 90 days ALM Classic RA has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong basic indicators, ALM Classic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ALM ES and ALM Classic

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

The idea behind ALM ES Actions and ALM Classic RA 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.