Correlation Between Bowler Metcalf and Allied Electronics

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

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

Diversification Opportunities for Bowler Metcalf and Allied Electronics

0.33

Correlation Coefficient

Bowler Metcalf  Allied Electronics

Weak diversification

The 3 months correlation between Bowler and Allied is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Bowler Metcalf and Allied Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Electronics and Bowler Metcalf 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 Bowler Metcalf are associated (or correlated) with Allied Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Electronics has no effect on the direction of Bowler Metcalf i.e., Bowler Metcalf and Allied Electronics go up and down completely randomly.

Pair Corralation between Bowler Metcalf and Allied Electronics

Assuming the 90 days trading horizon Bowler Metcalf is expected to generate 1.33 times less return on investment than Allied Electronics. In addition to that, Bowler Metcalf is 2.83 times more volatile than Allied Electronics. It trades about 0.05 of its total potential returns per unit of risk. Allied Electronics is currently generating about 0.2 per unit of volatility. If you would invest  131,200  in Allied Electronics on October 13, 2024 and sell it today you would earn a total of  112,700  from holding Allied Electronics or generate 85.9% return on investment over 90 days.

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

Bowler Metcalf  vs.  Allied Electronics

Bowler Metcalf

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bowler Metcalf has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Bowler Metcalf is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Allied Electronics

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Electronics are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Allied Electronics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bowler Metcalf and Allied Electronics

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

The idea behind Bowler Metcalf and Allied Electronics 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.