Correlation Between ALM Equity and SolTech Energy

Can any of the company-specific risk be diversified away by investing in both ALM Equity and SolTech Energy 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 SolTech Energy 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 SolTech Energy Sweden, you can compare the effects of market volatilities on ALM Equity and SolTech Energy 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 SolTech Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of ALM Equity and SolTech Energy.

Diversification Opportunities for ALM Equity and SolTech Energy

0.62

Correlation Coefficient

ALM Equity  SolTech Energy

Poor diversification

The 3 months correlation between ALM and SolTech is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding ALM Equity AB and SolTech Energy Sweden in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SolTech Energy Sweden 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 SolTech Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SolTech Energy Sweden has no effect on the direction of ALM Equity i.e., ALM Equity and SolTech Energy go up and down completely randomly.

Pair Corralation between ALM Equity and SolTech Energy

Assuming the 90 days trading horizon ALM Equity AB is expected to generate 0.15 times more return on investment than SolTech Energy. However, ALM Equity AB is 6.5 times less risky than SolTech Energy. It trades about -0.12 of its potential returns per unit of risk. SolTech Energy Sweden is currently generating about -0.26 per unit of risk. If you would invest  9,000  in ALM Equity AB on August 31, 2024 and sell it today you would lose (180.00) from holding ALM Equity AB or give up 2.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

ALM Equity AB  vs.  SolTech Energy Sweden

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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

SolTech Energy Sweden

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SolTech Energy Sweden 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 basic indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with ALM Equity and SolTech Energy

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

The idea behind ALM Equity AB and SolTech Energy Sweden 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.