Correlation Between Alarm Holdings and Appfolio

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

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

Diversification Opportunities for Alarm Holdings and Appfolio

0.49

Correlation Coefficient

Alarm Holdings  Appfolio

Very weak diversification

The 3 months correlation between Alarm and Appfolio is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Alarm Holdings and Appfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Appfolio 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 Appfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Appfolio has no effect on the direction of Alarm Holdings i.e., Alarm Holdings and Appfolio go up and down completely randomly.

Pair Corralation between Alarm Holdings and Appfolio

Given the investment horizon of 90 days Alarm Holdings is expected to under-perform the Appfolio. But the stock apears to be less risky and, when comparing its historical volatility, Alarm Holdings is 1.64 times less risky than Appfolio. The stock trades about -0.11 of its potential returns per unit of risk. The Appfolio is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  24,723  in Appfolio on December 29, 2024 and sell it today you would lose (2,204) from holding Appfolio or give up 8.91% of portfolio value over 90 days.

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

Alarm Holdings  vs.  Appfolio

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.

Appfolio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Appfolio has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Alarm Holdings and Appfolio

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

The idea behind Alarm Holdings and Appfolio 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..