Correlation Between ALM ES and R Co

Can any of the company-specific risk be diversified away by investing in both ALM ES and R Co 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 R Co 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 R co Valor F, you can compare the effects of market volatilities on ALM ES and R Co 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 R Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of ALM ES and R Co.

Diversification Opportunities for ALM ES and R Co

0.47

Correlation Coefficient

ALM ES  R Co

Very weak diversification

The 3 months correlation between ALM and 0P00017SX2 is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding ALM ES Actions and R co Valor F in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on R co Valor 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 R Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of R co Valor has no effect on the direction of ALM ES i.e., ALM ES and R Co go up and down completely randomly.

Pair Corralation between ALM ES and R Co

Assuming the 90 days trading horizon ALM ES Actions is expected to under-perform the R Co. In addition to that, ALM ES is 1.32 times more volatile than R co Valor F. It trades about -0.11 of its total potential returns per unit of risk. R co Valor F is currently generating about 0.08 per unit of volatility. If you would invest  303,178  in R co Valor F on December 28, 2024 and sell it today you would earn a total of  9,218  from holding R co Valor F or generate 3.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.72%
Values	Daily Returns

ALM ES Actions  vs.  R co Valor F

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 very healthy basic indicators, ALM ES is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

R co Valor

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in R co Valor F are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat strong basic indicators, R Co 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 R Co

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

The idea behind ALM ES Actions and R co Valor F 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.