Correlation Between ALPS and ALPSSmith Credit

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

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

Diversification Opportunities for ALPS and ALPSSmith Credit

0.09

Correlation Coefficient

ALPS  ALPSSmith Credit

Significant diversification

The 3 months correlation between ALPS and ALPSSmith is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding ALPS and ALPSSmith Credit Opportunities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALPSSmith Credit Opp and ALPS 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 ALPS are associated (or correlated) with ALPSSmith Credit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALPSSmith Credit Opp has no effect on the direction of ALPS i.e., ALPS and ALPSSmith Credit go up and down completely randomly.

Pair Corralation between ALPS and ALPSSmith Credit

Given the investment horizon of 90 days ALPS is expected to generate 3.95 times more return on investment than ALPSSmith Credit. However, ALPS is 3.95 times more volatile than ALPSSmith Credit Opportunities. It trades about 0.35 of its potential returns per unit of risk. ALPSSmith Credit Opportunities is currently generating about -0.11 per unit of risk. If you would invest  2,495  in ALPS on October 3, 2024 and sell it today you would earn a total of  94.00  from holding ALPS or generate 3.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	22.58%
Values	Daily Returns

ALPS  vs.  ALPSSmith Credit Opportunities

ALPS

Risk-Adjusted Performance

0 of 100

Strong

Over the last 90 days ALPS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak basic indicators, ALPS showed solid returns over the last few months and may actually be approaching a breakup point.

ALPSSmith Credit Opp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALPSSmith Credit Opportunities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, ALPSSmith Credit is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ALPS and ALPSSmith Credit

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

The idea behind ALPS and ALPSSmith Credit Opportunities 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.