Correlation Between Alarm Holdings and Alkami Technology

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

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

Diversification Opportunities for Alarm Holdings and Alkami Technology

0.77

Correlation Coefficient

Alarm Holdings  Alkami Technology

Poor diversification

The 3 months correlation between Alarm and Alkami is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Alarm Holdings and Alkami Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alkami Technology and Alarm Holdings 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 Alarm Holdings are associated (or correlated) with Alkami Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alkami Technology has no effect on the direction of Alarm Holdings i.e., Alarm Holdings and Alkami Technology go up and down completely randomly.

Pair Corralation between Alarm Holdings and Alkami Technology

Given the investment horizon of 90 days Alarm Holdings is expected to generate 0.48 times more return on investment than Alkami Technology. However, Alarm Holdings is 2.06 times less risky than Alkami Technology. It trades about -0.1 of its potential returns per unit of risk. Alkami Technology is currently generating about -0.18 per unit of risk. If you would invest  6,106  in Alarm Holdings on December 28, 2024 and sell it today you would lose (525.00) from holding Alarm Holdings or give up 8.6% of portfolio value over 90 days.

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

Alarm Holdings  vs.  Alkami Technology

Alarm Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alarm Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Alkami Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alkami Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's forward-looking signals remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Alarm Holdings and Alkami Technology

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

The idea behind Alarm Holdings and Alkami Technology 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.