Correlation Between Alger Smidcap and Alger Capital

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

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

Diversification Opportunities for Alger Smidcap and Alger Capital

0.85

Correlation Coefficient

Alger Smidcap  Alger Capital

Very poor diversification

The 3 months correlation between Alger and Alger is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Alger Smidcap Focus and Alger Capital Appreciation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alger Capital Apprec and Alger Smidcap 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 Smidcap Focus are associated (or correlated) with Alger Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alger Capital Apprec has no effect on the direction of Alger Smidcap i.e., Alger Smidcap and Alger Capital go up and down completely randomly.

Pair Corralation between Alger Smidcap and Alger Capital

Assuming the 90 days horizon Alger Smidcap is expected to generate 1.97 times less return on investment than Alger Capital. In addition to that, Alger Smidcap is 1.15 times more volatile than Alger Capital Appreciation. It trades about 0.15 of its total potential returns per unit of risk. Alger Capital Appreciation is currently generating about 0.35 per unit of volatility. If you would invest  9,536  in Alger Capital Appreciation on September 7, 2024 and sell it today you would earn a total of  2,508  from holding Alger Capital Appreciation or generate 26.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Alger Smidcap Focus  vs.  Alger Capital Appreciation

Alger Smidcap Focus

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alger Smidcap Focus are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Alger Smidcap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Alger Capital Apprec

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Alger Capital Appreciation are ranked lower than 27 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Alger Capital showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alger Smidcap and Alger Capital

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

The idea behind Alger Smidcap Focus and Alger Capital Appreciation 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.