Correlation Between Alliance Recovery and RCABS

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

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

Diversification Opportunities for Alliance Recovery and RCABS

-0.38

Correlation Coefficient

Alliance Recovery  RCABS

Very good diversification

The 3 months correlation between Alliance and RCABS is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Recovery and RCABS Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCABS Inc and Alliance Recovery 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 Alliance Recovery are associated (or correlated) with RCABS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RCABS Inc has no effect on the direction of Alliance Recovery i.e., Alliance Recovery and RCABS go up and down completely randomly.

Pair Corralation between Alliance Recovery and RCABS

Given the investment horizon of 90 days Alliance Recovery is expected to generate 0.98 times more return on investment than RCABS. However, Alliance Recovery is 1.02 times less risky than RCABS. It trades about 0.04 of its potential returns per unit of risk. RCABS Inc is currently generating about 0.03 per unit of risk. If you would invest  0.26  in Alliance Recovery on December 2, 2024 and sell it today you would earn a total of  0.01  from holding Alliance Recovery or generate 3.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.38%
Values	Daily Returns

Alliance Recovery  vs.  RCABS Inc

Alliance Recovery

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Recovery are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Alliance Recovery showed solid returns over the last few months and may actually be approaching a breakup point.

RCABS Inc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in RCABS Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, RCABS sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alliance Recovery and RCABS

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

The idea behind Alliance Recovery and RCABS Inc 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.