Correlation Between Alliance Financial and XL Holdings

Can any of the company-specific risk be diversified away by investing in both Alliance Financial and XL Holdings 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 XL Holdings 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 XL Holdings Bhd, you can compare the effects of market volatilities on Alliance Financial and XL Holdings 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 XL Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alliance Financial and XL Holdings.

Diversification Opportunities for Alliance Financial and XL Holdings

-0.56

Correlation Coefficient

Alliance Financial  XL Holdings

Excellent diversification

The 3 months correlation between Alliance and 7121 is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Financial Group and XL Holdings Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XL Holdings Bhd 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 XL Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XL Holdings Bhd has no effect on the direction of Alliance Financial i.e., Alliance Financial and XL Holdings go up and down completely randomly.

Pair Corralation between Alliance Financial and XL Holdings

Assuming the 90 days trading horizon Alliance Financial Group is expected to generate 1.21 times more return on investment than XL Holdings. However, Alliance Financial is 1.21 times more volatile than XL Holdings Bhd. It trades about 0.18 of its potential returns per unit of risk. XL Holdings Bhd is currently generating about -0.09 per unit of risk. If you would invest  422.00  in Alliance Financial Group on October 6, 2024 and sell it today you would earn a total of  78.00  from holding Alliance Financial Group or generate 18.48% return on investment over 90 days.

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

Alliance Financial Group  vs.  XL Holdings Bhd

Alliance Financial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Financial Group are ranked lower than 14 (%) 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.

XL Holdings Bhd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days XL Holdings Bhd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Alliance Financial and XL Holdings

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

The idea behind Alliance Financial Group and XL Holdings Bhd 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.