Correlation Between Altria and Global Lights

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

By analyzing existing cross correlation between Altria Group and Global Lights Acquisition, you can compare the effects of market volatilities on Altria and Global Lights 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 Altria with a short position of Global Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of Altria and Global Lights.

Diversification Opportunities for Altria and Global Lights

0.37

Correlation Coefficient

Altria  Global Lights

Weak diversification

The 3 months correlation between Altria and Global is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Altria Group and Global Lights Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Lights Acquisition and Altria 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 Altria Group are associated (or correlated) with Global Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Lights Acquisition has no effect on the direction of Altria i.e., Altria and Global Lights go up and down completely randomly.

Pair Corralation between Altria and Global Lights

Allowing for the 90-day total investment horizon Altria is expected to generate 23.48 times less return on investment than Global Lights. But when comparing it to its historical volatility, Altria Group is 14.77 times less risky than Global Lights. It trades about 0.17 of its potential returns per unit of risk. Global Lights Acquisition is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  15.00  in Global Lights Acquisition on December 19, 2024 and sell it today you would earn a total of  10.19  from holding Global Lights Acquisition or generate 67.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	25.42%
Values	Daily Returns

Altria Group  vs.  Global Lights Acquisition

Altria Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Altria Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Altria displayed solid returns over the last few months and may actually be approaching a breakup point.

Global Lights Acquisition

Risk-Adjusted Performance

Solid

Over the last 90 days Global Lights Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively unfluctuating fundamental indicators, Global Lights reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Altria and Global Lights

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

The idea behind Altria Group and Global Lights Acquisition 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.