Correlation Between ALPEK SAB and Select Sector

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

By analyzing existing cross correlation between ALPEK SAB de and The Select Sector, you can compare the effects of market volatilities on ALPEK SAB and Select Sector 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 ALPEK SAB with a short position of Select Sector. Check out your portfolio center. Please also check ongoing floating volatility patterns of ALPEK SAB and Select Sector.

Diversification Opportunities for ALPEK SAB and Select Sector

0.37

Correlation Coefficient

ALPEK SAB  Select Sector

Weak diversification

The 3 months correlation between ALPEK and Select is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding ALPEK SAB de and The Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Sector and ALPEK SAB 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 ALPEK SAB de are associated (or correlated) with Select Sector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Sector has no effect on the direction of ALPEK SAB i.e., ALPEK SAB and Select Sector go up and down completely randomly.

Pair Corralation between ALPEK SAB and Select Sector

Assuming the 90 days trading horizon ALPEK SAB de is expected to under-perform the Select Sector. In addition to that, ALPEK SAB is 1.44 times more volatile than The Select Sector. It trades about -0.04 of its total potential returns per unit of risk. The Select Sector is currently generating about 0.04 per unit of volatility. If you would invest  152,500  in The Select Sector on December 21, 2024 and sell it today you would earn a total of  6,417  from holding The Select Sector or generate 4.21% return on investment over 90 days.

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

ALPEK SAB de  vs.  The Select Sector

ALPEK SAB de

Risk-Adjusted Performance

Very Weak

Over the last 90 days ALPEK SAB de has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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.

Select Sector

Risk-Adjusted Performance

Insignificant

Over the last 90 days The Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Select Sector is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ALPEK SAB and Select Sector

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

The idea behind ALPEK SAB de and The Select Sector 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .