Correlation Between Data Communications and Alaska Energy

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

By analyzing existing cross correlation between Data Communications Management and Alaska Energy Metals, you can compare the effects of market volatilities on Data Communications and Alaska Energy 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 Data Communications with a short position of Alaska Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Data Communications and Alaska Energy.

Diversification Opportunities for Data Communications and Alaska Energy

-0.22

Correlation Coefficient

Data Communications  Alaska Energy

Very good diversification

The 3 months correlation between Data and Alaska is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Data Communications Management and Alaska Energy Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alaska Energy Metals and Data Communications 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 Data Communications Management are associated (or correlated) with Alaska Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alaska Energy Metals has no effect on the direction of Data Communications i.e., Data Communications and Alaska Energy go up and down completely randomly.

Pair Corralation between Data Communications and Alaska Energy

Assuming the 90 days trading horizon Data Communications is expected to generate 2.12 times less return on investment than Alaska Energy. But when comparing it to its historical volatility, Data Communications Management is 2.4 times less risky than Alaska Energy. It trades about 0.01 of its potential returns per unit of risk. Alaska Energy Metals is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  30.00  in Alaska Energy Metals on November 21, 2024 and sell it today you would lose (17.00) from holding Alaska Energy Metals or give up 56.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Data Communications Management  vs.  Alaska Energy Metals

Data Communications

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Data Communications Management are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, Data Communications is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Alaska Energy Metals

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alaska Energy Metals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal primary indicators, Alaska Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Data Communications and Alaska Energy

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

The idea behind Data Communications Management and Alaska Energy Metals 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.