Correlation Between Arabia Investments and Egypt Aluminum

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

By analyzing existing cross correlation between Arabia Investments Holding and Egypt Aluminum, you can compare the effects of market volatilities on Arabia Investments and Egypt Aluminum 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 Arabia Investments with a short position of Egypt Aluminum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arabia Investments and Egypt Aluminum.

Diversification Opportunities for Arabia Investments and Egypt Aluminum

0.05

Correlation Coefficient

Arabia Investments  Egypt Aluminum

Significant diversification

The 3 months correlation between Arabia and Egypt is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Arabia Investments Holding and Egypt Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Egypt Aluminum and Arabia Investments 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 Arabia Investments Holding are associated (or correlated) with Egypt Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Egypt Aluminum has no effect on the direction of Arabia Investments i.e., Arabia Investments and Egypt Aluminum go up and down completely randomly.

Pair Corralation between Arabia Investments and Egypt Aluminum

Assuming the 90 days trading horizon Arabia Investments is expected to generate 9.2 times less return on investment than Egypt Aluminum. But when comparing it to its historical volatility, Arabia Investments Holding is 1.59 times less risky than Egypt Aluminum. It trades about 0.05 of its potential returns per unit of risk. Egypt Aluminum is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  11,736  in Egypt Aluminum on December 23, 2024 and sell it today you would earn a total of  6,129  from holding Egypt Aluminum or generate 52.22% return on investment over 90 days.

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

Arabia Investments Holding  vs.  Egypt Aluminum

Arabia Investments

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arabia Investments Holding are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Arabia Investments is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Egypt Aluminum

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Egypt Aluminum are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Egypt Aluminum reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arabia Investments and Egypt Aluminum

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

The idea behind Arabia Investments Holding and Egypt Aluminum 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.