Correlation Between Alger Large and Alger Capital

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

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

Diversification Opportunities for Alger Large and Alger Capital

0.94

Correlation Coefficient

Alger Large  Alger Capital

Almost no diversification

The 3 months correlation between Alger and Alger is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Alger Large Cap and Alger Capital Appreciation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alger Capital Apprec and Alger Large 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 Alger Large Cap are associated (or correlated) with Alger Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alger Capital Apprec has no effect on the direction of Alger Large i.e., Alger Large and Alger Capital go up and down completely randomly.

Pair Corralation between Alger Large and Alger Capital

Assuming the 90 days horizon Alger Large Cap is expected to under-perform the Alger Capital. But the mutual fund apears to be less risky and, when comparing its historical volatility, Alger Large Cap is 1.02 times less risky than Alger Capital. The mutual fund trades about -0.08 of its potential returns per unit of risk. The Alger Capital Appreciation is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  4,656  in Alger Capital Appreciation on December 28, 2024 and sell it today you would lose (403.00) from holding Alger Capital Appreciation or give up 8.66% of portfolio value over 90 days.

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

Alger Large Cap  vs.  Alger Capital Appreciation

Alger Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alger Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Alger Capital Apprec

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alger Capital Appreciation has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Alger Large and Alger Capital

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

The idea behind Alger Large Cap and Alger Capital Appreciation 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.