Correlation Between ALK Abell and TORM Plc

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

By analyzing existing cross correlation between ALK Abell AS and TORM plc, you can compare the effects of market volatilities on ALK Abell and TORM Plc 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 ALK Abell with a short position of TORM Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of ALK Abell and TORM Plc.

Diversification Opportunities for ALK Abell and TORM Plc

0.52

Correlation Coefficient

ALK Abell  TORM Plc

Very weak diversification

The 3 months correlation between ALK and TORM is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding ALK Abell AS and TORM plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TORM plc and ALK Abell 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 ALK Abell AS are associated (or correlated) with TORM Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TORM plc has no effect on the direction of ALK Abell i.e., ALK Abell and TORM Plc go up and down completely randomly.

Pair Corralation between ALK Abell and TORM Plc

Assuming the 90 days trading horizon ALK Abell AS is expected to generate 0.6 times more return on investment than TORM Plc. However, ALK Abell AS is 1.66 times less risky than TORM Plc. It trades about -0.07 of its potential returns per unit of risk. TORM plc is currently generating about -0.06 per unit of risk. If you would invest  15,910  in ALK Abell AS on December 30, 2024 and sell it today you would lose (1,560) from holding ALK Abell AS or give up 9.81% of portfolio value over 90 days.

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

ALK Abell AS  vs.  TORM plc

ALK Abell AS

Risk-Adjusted Performance

Very Weak

Over the last 90 days ALK Abell AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

TORM plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days TORM plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with ALK Abell and TORM Plc

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

The idea behind ALK Abell AS and TORM plc 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.