Correlation Between Advanced Braking and Alto Metals

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

By analyzing existing cross correlation between Advanced Braking Technology and Alto Metals, you can compare the effects of market volatilities on Advanced Braking and Alto Metals 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 Advanced Braking with a short position of Alto Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advanced Braking and Alto Metals.

Diversification Opportunities for Advanced Braking and Alto Metals

0.89

Correlation Coefficient

Advanced Braking  Alto Metals

Very poor diversification

The 3 months correlation between Advanced and Alto is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Braking Technology and Alto Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alto Metals and Advanced Braking 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 Advanced Braking Technology are associated (or correlated) with Alto Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alto Metals has no effect on the direction of Advanced Braking i.e., Advanced Braking and Alto Metals go up and down completely randomly.

Pair Corralation between Advanced Braking and Alto Metals

Assuming the 90 days trading horizon Advanced Braking is expected to generate 3.23 times less return on investment than Alto Metals. But when comparing it to its historical volatility, Advanced Braking Technology is 1.16 times less risky than Alto Metals. It trades about 0.08 of its potential returns per unit of risk. Alto Metals is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  6.20  in Alto Metals on September 12, 2024 and sell it today you would earn a total of  3.20  from holding Alto Metals or generate 51.61% return on investment over 90 days.

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

Advanced Braking Technology  vs.  Alto Metals

Advanced Braking Tec

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Braking Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Advanced Braking unveiled solid returns over the last few months and may actually be approaching a breakup point.

Alto Metals

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alto Metals are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Alto Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advanced Braking and Alto Metals

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

The idea behind Advanced Braking Technology and Alto Metals 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.