Correlation Between ALi Corp and Spirox Corp

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

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

Diversification Opportunities for ALi Corp and Spirox Corp

-0.24

Correlation Coefficient

ALi Corp  Spirox Corp

Very good diversification

The 3 months correlation between ALi and Spirox is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding ALi Corp and Spirox Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirox Corp and ALi Corp 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 ALi Corp are associated (or correlated) with Spirox Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spirox Corp has no effect on the direction of ALi Corp i.e., ALi Corp and Spirox Corp go up and down completely randomly.

Pair Corralation between ALi Corp and Spirox Corp

Assuming the 90 days trading horizon ALi Corp is expected to generate 2.88 times more return on investment than Spirox Corp. However, ALi Corp is 2.88 times more volatile than Spirox Corp. It trades about 0.12 of its potential returns per unit of risk. Spirox Corp is currently generating about 0.03 per unit of risk. If you would invest  2,245  in ALi Corp on October 7, 2024 and sell it today you would earn a total of  1,455  from holding ALi Corp or generate 64.81% return on investment over 90 days.

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

ALi Corp  vs.  Spirox Corp

ALi Corp

Risk-Adjusted Performance

9 of 100

OK

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

Spirox Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Spirox Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Spirox Corp may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with ALi Corp and Spirox Corp

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

The idea behind ALi Corp and Spirox Corp 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.