Correlation Between Associated Alcohols and Linc

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

By analyzing existing cross correlation between Associated Alcohols Breweries and Linc Limited, you can compare the effects of market volatilities on Associated Alcohols and Linc 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 Associated Alcohols with a short position of Linc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Associated Alcohols and Linc.

Diversification Opportunities for Associated Alcohols and Linc

-0.11

Correlation Coefficient

Associated Alcohols  Linc

Good diversification

The 3 months correlation between Associated and Linc is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Associated Alcohols Breweries and Linc Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Linc Limited and Associated Alcohols 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 Associated Alcohols Breweries are associated (or correlated) with Linc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Linc Limited has no effect on the direction of Associated Alcohols i.e., Associated Alcohols and Linc go up and down completely randomly.

Pair Corralation between Associated Alcohols and Linc

Assuming the 90 days trading horizon Associated Alcohols is expected to generate 46.6 times less return on investment than Linc. But when comparing it to its historical volatility, Associated Alcohols Breweries is 62.68 times less risky than Linc. It trades about 0.19 of its potential returns per unit of risk. Linc Limited is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  16,015  in Linc Limited on October 6, 2024 and sell it today you would lose (130.00) from holding Linc Limited or give up 0.81% of portfolio value over 90 days.

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

Associated Alcohols Breweries  vs.  Linc Limited

Associated Alcohols

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Associated Alcohols Breweries are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental indicators, Associated Alcohols reported solid returns over the last few months and may actually be approaching a breakup point.

Linc Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Linc Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Linc unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Associated Alcohols and Linc

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

The idea behind Associated Alcohols Breweries and Linc Limited 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.