Correlation Between ALM Equity and Lundin Mining

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

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

Diversification Opportunities for ALM Equity and Lundin Mining

-0.24

Correlation Coefficient

ALM Equity  Lundin Mining

Very good diversification

The 3 months correlation between ALM and Lundin is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding ALM Equity AB and Lundin Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lundin Mining and ALM Equity 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 ALM Equity AB are associated (or correlated) with Lundin Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lundin Mining has no effect on the direction of ALM Equity i.e., ALM Equity and Lundin Mining go up and down completely randomly.

Pair Corralation between ALM Equity and Lundin Mining

Assuming the 90 days trading horizon ALM Equity is expected to generate 93.36 times less return on investment than Lundin Mining. But when comparing it to its historical volatility, ALM Equity AB is 4.1 times less risky than Lundin Mining. It trades about 0.0 of its potential returns per unit of risk. Lundin Mining is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  9,368  in Lundin Mining on September 4, 2024 and sell it today you would earn a total of  1,302  from holding Lundin Mining or generate 13.9% return on investment over 90 days.

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

ALM Equity AB  vs.  Lundin Mining

ALM Equity AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALM Equity AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, ALM Equity is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Lundin Mining

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lundin Mining are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Lundin Mining unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ALM Equity and Lundin Mining

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

The idea behind ALM Equity AB and Lundin Mining 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.