Correlation Between Alpine Ultra and Gateway Equity

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

By analyzing existing cross correlation between Alpine Ultra Short and Gateway Equity Call, you can compare the effects of market volatilities on Alpine Ultra and Gateway Equity 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 Alpine Ultra with a short position of Gateway Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alpine Ultra and Gateway Equity.

Diversification Opportunities for Alpine Ultra and Gateway Equity

0.51

Correlation Coefficient

Alpine Ultra  Gateway Equity

Very weak diversification

The 3 months correlation between Alpine and Gateway is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Alpine Ultra Short and Gateway Equity Call in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gateway Equity Call and Alpine Ultra 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 Alpine Ultra Short are associated (or correlated) with Gateway Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gateway Equity Call has no effect on the direction of Alpine Ultra i.e., Alpine Ultra and Gateway Equity go up and down completely randomly.

Pair Corralation between Alpine Ultra and Gateway Equity

Assuming the 90 days horizon Alpine Ultra is expected to generate 3.24 times less return on investment than Gateway Equity. But when comparing it to its historical volatility, Alpine Ultra Short is 10.51 times less risky than Gateway Equity. It trades about 0.21 of its potential returns per unit of risk. Gateway Equity Call is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,966  in Gateway Equity Call on October 22, 2024 and sell it today you would earn a total of  49.00  from holding Gateway Equity Call or generate 2.49% return on investment over 90 days.

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

Alpine Ultra Short  vs.  Gateway Equity Call

Alpine Ultra Short

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alpine Ultra Short are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Alpine Ultra is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Gateway Equity Call

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with Alpine Ultra and Gateway Equity

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

The idea behind Alpine Ultra Short and Gateway Equity Call 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.