Correlation Between Alkali Metals and Federal Bank

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

By analyzing existing cross correlation between Alkali Metals Limited and The Federal Bank, you can compare the effects of market volatilities on Alkali Metals and Federal Bank 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 Alkali Metals with a short position of Federal Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alkali Metals and Federal Bank.

Diversification Opportunities for Alkali Metals and Federal Bank

0.53

Correlation Coefficient

Alkali Metals  Federal Bank

Very weak diversification

The 3 months correlation between Alkali and Federal is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Alkali Metals Limited and The Federal Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Bank and Alkali Metals 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 Alkali Metals Limited are associated (or correlated) with Federal Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Bank has no effect on the direction of Alkali Metals i.e., Alkali Metals and Federal Bank go up and down completely randomly.

Pair Corralation between Alkali Metals and Federal Bank

Assuming the 90 days trading horizon Alkali Metals Limited is expected to under-perform the Federal Bank. In addition to that, Alkali Metals is 1.16 times more volatile than The Federal Bank. It trades about -0.05 of its total potential returns per unit of risk. The Federal Bank is currently generating about 0.03 per unit of volatility. If you would invest  18,872  in The Federal Bank on October 23, 2024 and sell it today you would earn a total of  531.00  from holding The Federal Bank or generate 2.81% return on investment over 90 days.

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

Alkali Metals Limited  vs.  The Federal Bank

Alkali Metals Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

Federal Bank

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Federal Bank are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Federal Bank is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Alkali Metals and Federal Bank

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

The idea behind Alkali Metals Limited and The Federal Bank 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.