Correlation Between Aldel Financial and Philadelphia Semiconductor

Can any of the company-specific risk be diversified away by investing in both Aldel Financial and Philadelphia Semiconductor 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 Philadelphia Semiconductor 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 Philadelphia Semiconductor Index, you can compare the effects of market volatilities on Aldel Financial and Philadelphia Semiconductor 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 Philadelphia Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aldel Financial and Philadelphia Semiconductor.

Diversification Opportunities for Aldel Financial and Philadelphia Semiconductor

0.21

Correlation Coefficient

Aldel Financial  Philadelphia Semiconductor

Modest diversification

The 3 months correlation between Aldel and Philadelphia is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Aldel Financial II and Philadelphia Semiconductor Ind in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Philadelphia Semiconductor 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 Philadelphia Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Philadelphia Semiconductor has no effect on the direction of Aldel Financial i.e., Aldel Financial and Philadelphia Semiconductor go up and down completely randomly.

Pair Corralation between Aldel Financial and Philadelphia Semiconductor

Assuming the 90 days horizon Aldel Financial is expected to generate 8.75 times less return on investment than Philadelphia Semiconductor. But when comparing it to its historical volatility, Aldel Financial II is 17.63 times less risky than Philadelphia Semiconductor. It trades about 0.1 of its potential returns per unit of risk. Philadelphia Semiconductor Index is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  491,044  in Philadelphia Semiconductor Index on September 16, 2024 and sell it today you would earn a total of  23,934  from holding Philadelphia Semiconductor Index or generate 4.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	60.0%
Values	Daily Returns

Aldel Financial II  vs.  Philadelphia Semiconductor Ind

Pair Trading with Aldel Financial and Philadelphia Semiconductor

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

The idea behind Aldel Financial II and Philadelphia Semiconductor Index 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.