Correlation Between ALFORMER Industrial and Elite Material

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

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

Diversification Opportunities for ALFORMER Industrial and Elite Material

0.02

Correlation Coefficient

ALFORMER Industrial  Elite Material

Significant diversification

The 3 months correlation between ALFORMER and Elite is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding ALFORMER Industrial Co and Elite Material Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elite Material and ALFORMER Industrial 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 ALFORMER Industrial Co are associated (or correlated) with Elite Material. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elite Material has no effect on the direction of ALFORMER Industrial i.e., ALFORMER Industrial and Elite Material go up and down completely randomly.

Pair Corralation between ALFORMER Industrial and Elite Material

Assuming the 90 days trading horizon ALFORMER Industrial is expected to generate 2.27 times less return on investment than Elite Material. In addition to that, ALFORMER Industrial is 1.83 times more volatile than Elite Material Co. It trades about 0.06 of its total potential returns per unit of risk. Elite Material Co is currently generating about 0.24 per unit of volatility. If you would invest  44,200  in Elite Material Co on October 1, 2024 and sell it today you would earn a total of  18,800  from holding Elite Material Co or generate 42.53% return on investment over 90 days.

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

ALFORMER Industrial Co  vs.  Elite Material Co

ALFORMER Industrial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ALFORMER Industrial Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, ALFORMER Industrial showed solid returns over the last few months and may actually be approaching a breakup point.

Elite Material

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Elite Material Co are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Elite Material showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ALFORMER Industrial and Elite Material

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

The idea behind ALFORMER Industrial Co and Elite Material 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 Global Correlations module to find global opportunities by holding instruments from different markets.