Correlation Between IAR SA and Alro Slatina

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

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

Diversification Opportunities for IAR SA and Alro Slatina

0.25

Correlation Coefficient

IAR SA  Alro Slatina

Modest diversification

The 3 months correlation between IAR and Alro is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding IAR SA and Alro Slatina in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alro Slatina and IAR SA 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 IAR SA are associated (or correlated) with Alro Slatina. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alro Slatina has no effect on the direction of IAR SA i.e., IAR SA and Alro Slatina go up and down completely randomly.

Pair Corralation between IAR SA and Alro Slatina

Assuming the 90 days trading horizon IAR SA is expected to generate 1.3 times more return on investment than Alro Slatina. However, IAR SA is 1.3 times more volatile than Alro Slatina. It trades about 0.11 of its potential returns per unit of risk. Alro Slatina is currently generating about -0.02 per unit of risk. If you would invest  1,250  in IAR SA on December 20, 2024 and sell it today you would earn a total of  165.00  from holding IAR SA or generate 13.2% return on investment over 90 days.

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

IAR SA  vs.  Alro Slatina

IAR SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in IAR SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IAR SA displayed solid returns over the last few months and may actually be approaching a breakup point.

Alro Slatina

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alro Slatina has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Alro Slatina is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IAR SA and Alro Slatina

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

The idea behind IAR SA and Alro Slatina 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.