Correlation Between Allis Electric and STL Technology

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

By analyzing existing cross correlation between Allis Electric Co and STL Technology Co, you can compare the effects of market volatilities on Allis Electric and STL Technology 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 Allis Electric with a short position of STL Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allis Electric and STL Technology.

Diversification Opportunities for Allis Electric and STL Technology

0.61

Correlation Coefficient

Allis Electric  STL Technology

Poor diversification

The 3 months correlation between Allis and STL is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Allis Electric Co and STL Technology Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STL Technology and Allis Electric 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 Allis Electric Co are associated (or correlated) with STL Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STL Technology has no effect on the direction of Allis Electric i.e., Allis Electric and STL Technology go up and down completely randomly.

Pair Corralation between Allis Electric and STL Technology

Assuming the 90 days trading horizon Allis Electric is expected to generate 2.08 times less return on investment than STL Technology. But when comparing it to its historical volatility, Allis Electric Co is 1.58 times less risky than STL Technology. It trades about 0.09 of its potential returns per unit of risk. STL Technology Co is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  6,990  in STL Technology Co on December 29, 2024 and sell it today you would earn a total of  1,710  from holding STL Technology Co or generate 24.46% return on investment over 90 days.

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

Allis Electric Co  vs.  STL Technology Co

Allis Electric

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Allis Electric Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Allis Electric showed solid returns over the last few months and may actually be approaching a breakup point.

STL Technology

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in STL Technology Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, STL Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Allis Electric and STL Technology

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

The idea behind Allis Electric Co and STL Technology Co 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 Stocks Directory module to find actively traded stocks across global markets.