Correlation Between Alliance Financial and Magni Tech

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

By analyzing existing cross correlation between Alliance Financial Group and Magni Tech Industries, you can compare the effects of market volatilities on Alliance Financial and Magni Tech 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 Alliance Financial with a short position of Magni Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alliance Financial and Magni Tech.

Diversification Opportunities for Alliance Financial and Magni Tech

0.49

Correlation Coefficient

Alliance Financial  Magni Tech

Very weak diversification

The 3 months correlation between Alliance and Magni is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Financial Group and Magni Tech Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magni Tech Industries and Alliance Financial 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 Alliance Financial Group are associated (or correlated) with Magni Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magni Tech Industries has no effect on the direction of Alliance Financial i.e., Alliance Financial and Magni Tech go up and down completely randomly.

Pair Corralation between Alliance Financial and Magni Tech

Assuming the 90 days trading horizon Alliance Financial is expected to generate 1.4 times less return on investment than Magni Tech. But when comparing it to its historical volatility, Alliance Financial Group is 1.11 times less risky than Magni Tech. It trades about 0.13 of its potential returns per unit of risk. Magni Tech Industries is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  226.00  in Magni Tech Industries on September 3, 2024 and sell it today you would earn a total of  44.00  from holding Magni Tech Industries or generate 19.47% return on investment over 90 days.

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

Alliance Financial Group  vs.  Magni Tech Industries

Alliance Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Financial Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Alliance Financial disclosed solid returns over the last few months and may actually be approaching a breakup point.

Magni Tech Industries

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Magni Tech Industries are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Magni Tech disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alliance Financial and Magni Tech

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

The idea behind Alliance Financial Group and Magni Tech Industries 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.