Correlation Between Alger Small and Alger Growth

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

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

Diversification Opportunities for Alger Small and Alger Growth

0.86

Correlation Coefficient

Alger Small  Alger Growth

Very poor diversification

The 3 months correlation between Alger and Alger is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Alger Small Cap and Alger Growth Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alger Growth Income and Alger Small 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 Alger Small Cap are associated (or correlated) with Alger Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alger Growth Income has no effect on the direction of Alger Small i.e., Alger Small and Alger Growth go up and down completely randomly.

Pair Corralation between Alger Small and Alger Growth

Assuming the 90 days horizon Alger Small is expected to generate 1.51 times less return on investment than Alger Growth. In addition to that, Alger Small is 1.86 times more volatile than Alger Growth Income. It trades about 0.04 of its total potential returns per unit of risk. Alger Growth Income is currently generating about 0.1 per unit of volatility. If you would invest  5,292  in Alger Growth Income on September 28, 2024 and sell it today you would earn a total of  2,559  from holding Alger Growth Income or generate 48.36% return on investment over 90 days.

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

Alger Small Cap  vs.  Alger Growth Income

Alger Small Cap

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alger Small Cap are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Alger Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Alger Growth Income

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alger Growth Income are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Alger Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alger Small and Alger Growth

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

The idea behind Alger Small Cap and Alger Growth Income 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.