Correlation Between Alfa Financial and International Consolidated

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

By analyzing existing cross correlation between Alfa Financial Software and International Consolidated Airlines, you can compare the effects of market volatilities on Alfa Financial and International Consolidated 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 Alfa Financial with a short position of International Consolidated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alfa Financial and International Consolidated.

Diversification Opportunities for Alfa Financial and International Consolidated

0.6

Correlation Coefficient

Alfa Financial  International Consolidated

Poor diversification

The 3 months correlation between Alfa and International is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Alfa Financial Software and International Consolidated Air in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Consolidated and Alfa 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 Alfa Financial Software are associated (or correlated) with International Consolidated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Consolidated has no effect on the direction of Alfa Financial i.e., Alfa Financial and International Consolidated go up and down completely randomly.

Pair Corralation between Alfa Financial and International Consolidated

Assuming the 90 days trading horizon Alfa Financial is expected to generate 5.29 times less return on investment than International Consolidated. In addition to that, Alfa Financial is 1.0 times more volatile than International Consolidated Airlines. It trades about 0.07 of its total potential returns per unit of risk. International Consolidated Airlines is currently generating about 0.38 per unit of volatility. If you would invest  230.00  in International Consolidated Airlines on October 5, 2024 and sell it today you would earn a total of  131.00  from holding International Consolidated Airlines or generate 56.96% return on investment over 90 days.

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

Alfa Financial Software  vs.  International Consolidated Air

Alfa Financial Software

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Alfa Financial Software has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively uncertain basic indicators, Alfa Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

International Consolidated

Risk-Adjusted Performance

0 of 100

Very Strong

Over the last 90 days International Consolidated Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, International Consolidated reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alfa Financial and International Consolidated

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

The idea behind Alfa Financial Software and International Consolidated Airlines 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.