Correlation Between General Plastic and Alar Pharmaceuticals

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

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

Diversification Opportunities for General Plastic and Alar Pharmaceuticals

0.82

Correlation Coefficient

General Plastic  Alar Pharmaceuticals

Very poor diversification

The 3 months correlation between General and Alar is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding General Plastic Industrial and Alar Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alar Pharmaceuticals and General Plastic 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 General Plastic Industrial are associated (or correlated) with Alar Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alar Pharmaceuticals has no effect on the direction of General Plastic i.e., General Plastic and Alar Pharmaceuticals go up and down completely randomly.

Pair Corralation between General Plastic and Alar Pharmaceuticals

Assuming the 90 days trading horizon General Plastic is expected to generate 2.83 times less return on investment than Alar Pharmaceuticals. But when comparing it to its historical volatility, General Plastic Industrial is 4.44 times less risky than Alar Pharmaceuticals. It trades about 0.38 of its potential returns per unit of risk. Alar Pharmaceuticals is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  12,650  in Alar Pharmaceuticals on December 5, 2024 and sell it today you would earn a total of  2,250  from holding Alar Pharmaceuticals or generate 17.79% return on investment over 90 days.

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

General Plastic Industrial  vs.  Alar Pharmaceuticals

General Plastic Indu

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Plastic Industrial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, General Plastic is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Alar Pharmaceuticals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alar Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Alar Pharmaceuticals is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with General Plastic and Alar Pharmaceuticals

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

The idea behind General Plastic Industrial and Alar Pharmaceuticals 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.