Correlation Between City Retail and Alumindo Light

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

By analyzing existing cross correlation between City Retail Developments and Alumindo Light Metal, you can compare the effects of market volatilities on City Retail and Alumindo Light 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 City Retail with a short position of Alumindo Light. Check out your portfolio center. Please also check ongoing floating volatility patterns of City Retail and Alumindo Light.

Diversification Opportunities for City Retail and Alumindo Light

-0.4

Correlation Coefficient

City Retail  Alumindo Light

Very good diversification

The 3 months correlation between City and Alumindo is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding City Retail Developments and Alumindo Light Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alumindo Light Metal and City Retail 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 City Retail Developments are associated (or correlated) with Alumindo Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alumindo Light Metal has no effect on the direction of City Retail i.e., City Retail and Alumindo Light go up and down completely randomly.

Pair Corralation between City Retail and Alumindo Light

Assuming the 90 days trading horizon City Retail Developments is expected to under-perform the Alumindo Light. But the stock apears to be less risky and, when comparing its historical volatility, City Retail Developments is 3.94 times less risky than Alumindo Light. The stock trades about -0.14 of its potential returns per unit of risk. The Alumindo Light Metal is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  7,500  in Alumindo Light Metal on September 16, 2024 and sell it today you would lose (100.00) from holding Alumindo Light Metal or give up 1.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

City Retail Developments  vs.  Alumindo Light Metal

City Retail Developments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days City Retail Developments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Alumindo Light Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alumindo Light Metal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Alumindo Light is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with City Retail and Alumindo Light

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

The idea behind City Retail Developments and Alumindo Light Metal 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.