Correlation Between Alfa SAB and TopBuild Corp

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

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

Diversification Opportunities for Alfa SAB and TopBuild Corp

-0.74

Correlation Coefficient

Alfa SAB  TopBuild Corp

Pay attention - limited upside

The 3 months correlation between Alfa and TopBuild is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Alfa SAB de and TopBuild Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TopBuild Corp and Alfa SAB 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 Alfa SAB de are associated (or correlated) with TopBuild Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TopBuild Corp has no effect on the direction of Alfa SAB i.e., Alfa SAB and TopBuild Corp go up and down completely randomly.

Pair Corralation between Alfa SAB and TopBuild Corp

Assuming the 90 days trading horizon Alfa SAB is expected to generate 1.0 times less return on investment than TopBuild Corp. But when comparing it to its historical volatility, Alfa SAB de is 1.84 times less risky than TopBuild Corp. It trades about 0.07 of its potential returns per unit of risk. TopBuild Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  470,400  in TopBuild Corp on December 2, 2024 and sell it today you would earn a total of  197,600  from holding TopBuild Corp or generate 42.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.73%
Values	Daily Returns

Alfa SAB de  vs.  TopBuild Corp

Alfa SAB de

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa SAB de are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Alfa SAB may actually be approaching a critical reversion point that can send shares even higher in April 2025.

TopBuild Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days TopBuild Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Alfa SAB and TopBuild Corp

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

The idea behind Alfa SAB de and TopBuild Corp 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.