Correlation Between Alior Bank and WSE WIG

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

By analyzing existing cross correlation between Alior Bank SA and WSE WIG INDEX, you can compare the effects of market volatilities on Alior Bank and WSE WIG 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 Alior Bank with a short position of WSE WIG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alior Bank and WSE WIG.

Diversification Opportunities for Alior Bank and WSE WIG

0.89

Correlation Coefficient

Alior Bank  WSE WIG

Very poor diversification

The 3 months correlation between Alior and WSE is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Alior Bank SA and WSE WIG INDEX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WSE WIG INDEX and Alior Bank 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 Alior Bank SA are associated (or correlated) with WSE WIG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WSE WIG INDEX has no effect on the direction of Alior Bank i.e., Alior Bank and WSE WIG go up and down completely randomly.

Pair Corralation between Alior Bank and WSE WIG

Assuming the 90 days trading horizon Alior Bank SA is expected to generate 1.99 times more return on investment than WSE WIG. However, Alior Bank is 1.99 times more volatile than WSE WIG INDEX. It trades about 0.24 of its potential returns per unit of risk. WSE WIG INDEX is currently generating about 0.29 per unit of risk. If you would invest  8,598  in Alior Bank SA on December 29, 2024 and sell it today you would earn a total of  3,502  from holding Alior Bank SA or generate 40.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Alior Bank SA  vs.  WSE WIG INDEX

Pair Trading with Alior Bank and WSE WIG

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

The idea behind Alior Bank SA and WSE WIG INDEX 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.