Correlation Between Alger Small and State Farm

Can any of the company-specific risk be diversified away by investing in both Alger Small and State Farm 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 State Farm 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 State Farm Interim, you can compare the effects of market volatilities on Alger Small and State Farm 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 State Farm. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alger Small and State Farm.

Diversification Opportunities for Alger Small and State Farm

0.1

Correlation Coefficient

Alger Small  State Farm

Average diversification

The 3 months correlation between Alger and State is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Alger Small Cap and State Farm Interim in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Farm Interim 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 State Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Farm Interim has no effect on the direction of Alger Small i.e., Alger Small and State Farm go up and down completely randomly.

Pair Corralation between Alger Small and State Farm

Assuming the 90 days horizon Alger Small Cap is expected to under-perform the State Farm. In addition to that, Alger Small is 7.48 times more volatile than State Farm Interim. It trades about -0.01 of its total potential returns per unit of risk. State Farm Interim is currently generating about 0.15 per unit of volatility. If you would invest  952.00  in State Farm Interim on October 22, 2024 and sell it today you would earn a total of  4.00  from holding State Farm Interim or generate 0.42% return on investment over 90 days.

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

Alger Small Cap  vs.  State Farm Interim

Alger Small Cap

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alger Small Cap are ranked lower than 6 (%) 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 February 2025.

State Farm Interim

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Farm Interim has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, State Farm 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 State Farm

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

The idea behind Alger Small Cap and State Farm Interim 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.