Correlation Between ChemoMetec and ALK Abell

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

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

Diversification Opportunities for ChemoMetec and ALK Abell

-0.27

Correlation Coefficient

ChemoMetec  ALK Abell

Very good diversification

The 3 months correlation between ChemoMetec and ALK is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding ChemoMetec AS and ALK Abell AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALK Abell AS and ChemoMetec 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 ChemoMetec AS are associated (or correlated) with ALK Abell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALK Abell AS has no effect on the direction of ChemoMetec i.e., ChemoMetec and ALK Abell go up and down completely randomly.

Pair Corralation between ChemoMetec and ALK Abell

Assuming the 90 days trading horizon ChemoMetec AS is expected to generate 2.19 times more return on investment than ALK Abell. However, ChemoMetec is 2.19 times more volatile than ALK Abell AS. It trades about 0.11 of its potential returns per unit of risk. ALK Abell AS is currently generating about -0.05 per unit of risk. If you would invest  36,300  in ChemoMetec AS on September 3, 2024 and sell it today you would earn a total of  11,060  from holding ChemoMetec AS or generate 30.47% return on investment over 90 days.

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

ChemoMetec AS  vs.  ALK Abell AS

ChemoMetec AS

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ChemoMetec AS are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, ChemoMetec exhibited solid returns over the last few months and may actually be approaching a breakup point.

ALK Abell AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALK Abell AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with ChemoMetec and ALK Abell

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

The idea behind ChemoMetec AS and ALK Abell AS 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.