Correlation Between Aluminum and Snam SpA

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

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

Diversification Opportunities for Aluminum and Snam SpA

0.1

Correlation Coefficient

Aluminum  Snam SpA

Average diversification

The 3 months correlation between Aluminum and Snam is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Aluminum of and Snam SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Snam SpA and Aluminum 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 Aluminum of are associated (or correlated) with Snam SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Snam SpA has no effect on the direction of Aluminum i.e., Aluminum and Snam SpA go up and down completely randomly.

Pair Corralation between Aluminum and Snam SpA

Assuming the 90 days horizon Aluminum of is expected to generate 1.58 times more return on investment than Snam SpA. However, Aluminum is 1.58 times more volatile than Snam SpA. It trades about 0.04 of its potential returns per unit of risk. Snam SpA is currently generating about 0.02 per unit of risk. If you would invest  42.00  in Aluminum of on October 11, 2024 and sell it today you would earn a total of  12.00  from holding Aluminum of or generate 28.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	80.98%
Values	Daily Returns

Aluminum of  vs.  Snam SpA

Aluminum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aluminum of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Snam SpA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Snam SpA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Snam SpA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Aluminum and Snam SpA

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

The idea behind Aluminum of and Snam SpA 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.