Correlation Between Alector and Motorola Solutions

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

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

Diversification Opportunities for Alector and Motorola Solutions

-0.47

Correlation Coefficient

Alector  Motorola Solutions

Very good diversification

The 3 months correlation between Alector and Motorola is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Alector and Motorola Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Motorola Solutions and Alector 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 Alector are associated (or correlated) with Motorola Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Motorola Solutions has no effect on the direction of Alector i.e., Alector and Motorola Solutions go up and down completely randomly.

Pair Corralation between Alector and Motorola Solutions

Given the investment horizon of 90 days Alector is expected to under-perform the Motorola Solutions. In addition to that, Alector is 5.18 times more volatile than Motorola Solutions. It trades about -0.21 of its total potential returns per unit of risk. Motorola Solutions is currently generating about 0.09 per unit of volatility. If you would invest  43,557  in Motorola Solutions on September 18, 2024 and sell it today you would earn a total of  3,169  from holding Motorola Solutions or generate 7.28% return on investment over 90 days.

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

Alector  vs.  Motorola Solutions

Alector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alector has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Motorola Solutions

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Motorola Solutions are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Motorola Solutions may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Alector and Motorola Solutions

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

The idea behind Alector and Motorola Solutions 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.