Correlation Between Aldel Financial and Small Cap

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

By analyzing existing cross correlation between Aldel Financial II and Small Cap Premium, you can compare the effects of market volatilities on Aldel Financial and Small Cap 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 Aldel Financial with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aldel Financial and Small Cap.

Diversification Opportunities for Aldel Financial and Small Cap

-0.26

Correlation Coefficient

Aldel Financial  Small Cap

Very good diversification

The 3 months correlation between Aldel and Small is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Aldel Financial II and Small Cap Premium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Premium and Aldel 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 Aldel Financial II are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Premium has no effect on the direction of Aldel Financial i.e., Aldel Financial and Small Cap go up and down completely randomly.

Pair Corralation between Aldel Financial and Small Cap

Given the investment horizon of 90 days Aldel Financial is expected to generate 1.5 times less return on investment than Small Cap. But when comparing it to its historical volatility, Aldel Financial II is 3.59 times less risky than Small Cap. It trades about 0.18 of its potential returns per unit of risk. Small Cap Premium is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,340  in Small Cap Premium on October 4, 2024 and sell it today you would earn a total of  102.00  from holding Small Cap Premium or generate 4.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	10.32%
Values	Daily Returns

Aldel Financial II  vs.  Small Cap Premium

Aldel Financial II

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aldel Financial II are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Aldel Financial is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Small Cap Premium

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Premium are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Small Cap is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Aldel Financial and Small Cap

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

The idea behind Aldel Financial II and Small Cap Premium 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.