Correlation Between CPE Technology and Alliance Financial

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

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

Diversification Opportunities for CPE Technology and Alliance Financial

0.78

Correlation Coefficient

CPE Technology  Alliance Financial

Poor diversification

The 3 months correlation between CPE and Alliance is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding CPE Technology Berhad and Alliance Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Financial and CPE Technology 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 CPE Technology Berhad are associated (or correlated) with Alliance Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Financial has no effect on the direction of CPE Technology i.e., CPE Technology and Alliance Financial go up and down completely randomly.

Pair Corralation between CPE Technology and Alliance Financial

Assuming the 90 days trading horizon CPE Technology Berhad is expected to under-perform the Alliance Financial. In addition to that, CPE Technology is 1.7 times more volatile than Alliance Financial Group. It trades about -0.11 of its total potential returns per unit of risk. Alliance Financial Group is currently generating about 0.14 per unit of volatility. If you would invest  397.00  in Alliance Financial Group on October 21, 2024 and sell it today you would earn a total of  119.00  from holding Alliance Financial Group or generate 29.97% return on investment over 90 days.

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

CPE Technology Berhad  vs.  Alliance Financial Group

CPE Technology Berhad

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CPE Technology Berhad are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, CPE Technology disclosed solid returns over the last few months and may actually be approaching a breakup point.

Alliance Financial

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Financial Group are ranked lower than 12 (%) 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.

Pair Trading with CPE Technology and Alliance Financial

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

The idea behind CPE Technology Berhad and Alliance Financial Group 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 Transaction History module to view history of all your transactions and understand their impact on performance.