Correlation Between Cimentas Izmir and Alfas Solar

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

By analyzing existing cross correlation between Cimentas Izmir Cimento and Alfas Solar Enerji, you can compare the effects of market volatilities on Cimentas Izmir and Alfas Solar 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 Cimentas Izmir with a short position of Alfas Solar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cimentas Izmir and Alfas Solar.

Diversification Opportunities for Cimentas Izmir and Alfas Solar

0.72

Correlation Coefficient

Cimentas Izmir  Alfas Solar

Poor diversification

The 3 months correlation between Cimentas and Alfas is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Cimentas Izmir Cimento and Alfas Solar Enerji in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alfas Solar Enerji and Cimentas Izmir 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 Cimentas Izmir Cimento are associated (or correlated) with Alfas Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alfas Solar Enerji has no effect on the direction of Cimentas Izmir i.e., Cimentas Izmir and Alfas Solar go up and down completely randomly.

Pair Corralation between Cimentas Izmir and Alfas Solar

Assuming the 90 days trading horizon Cimentas Izmir Cimento is expected to generate 1.48 times more return on investment than Alfas Solar. However, Cimentas Izmir is 1.48 times more volatile than Alfas Solar Enerji. It trades about 0.07 of its potential returns per unit of risk. Alfas Solar Enerji is currently generating about -0.04 per unit of risk. If you would invest  24,970  in Cimentas Izmir Cimento on September 23, 2024 and sell it today you would earn a total of  21,555  from holding Cimentas Izmir Cimento or generate 86.32% return on investment over 90 days.

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

Cimentas Izmir Cimento  vs.  Alfas Solar Enerji

Cimentas Izmir Cimento

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cimentas Izmir Cimento are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent forward indicators, Cimentas Izmir demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Alfas Solar Enerji

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alfas Solar Enerji are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent forward indicators, Alfas Solar demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cimentas Izmir and Alfas Solar

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

The idea behind Cimentas Izmir Cimento and Alfas Solar Enerji 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.