Correlation Between Alliance Global and MDU Resources

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

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

Diversification Opportunities for Alliance Global and MDU Resources

-0.43

Correlation Coefficient

Alliance Global  MDU Resources

Very good diversification

The 3 months correlation between Alliance and MDU is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Global Group and MDU Resources Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MDU Resources Group and Alliance Global 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 Alliance Global Group are associated (or correlated) with MDU Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MDU Resources Group has no effect on the direction of Alliance Global i.e., Alliance Global and MDU Resources go up and down completely randomly.

Pair Corralation between Alliance Global and MDU Resources

Assuming the 90 days horizon Alliance Global Group is expected to under-perform the MDU Resources. But the pink sheet apears to be less risky and, when comparing its historical volatility, Alliance Global Group is 1.56 times less risky than MDU Resources. The pink sheet trades about -0.09 of its potential returns per unit of risk. The MDU Resources Group is currently generating about 0.46 of returns per unit of risk over similar time horizon. If you would invest  1,598  in MDU Resources Group on September 1, 2024 and sell it today you would earn a total of  406.00  from holding MDU Resources Group or generate 25.41% return on investment over 90 days.

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

Alliance Global Group  vs.  MDU Resources Group

Alliance Global Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alliance Global Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Alliance Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

MDU Resources Group

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MDU Resources Group are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, MDU Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alliance Global and MDU Resources

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

The idea behind Alliance Global Group and MDU Resources Group 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.