Correlation Between Polar Capital and Alfa Financial

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

By analyzing existing cross correlation between Polar Capital Technology and Alfa Financial Software, you can compare the effects of market volatilities on Polar Capital and Alfa Financial 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 Polar Capital with a short position of Alfa Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Polar Capital and Alfa Financial.

Diversification Opportunities for Polar Capital and Alfa Financial

0.6

Correlation Coefficient

Polar Capital  Alfa Financial

Poor diversification

The 3 months correlation between Polar and Alfa is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Polar Capital Technology and Alfa Financial Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alfa Financial Software and Polar Capital 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 Polar Capital Technology are associated (or correlated) with Alfa Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alfa Financial Software has no effect on the direction of Polar Capital i.e., Polar Capital and Alfa Financial go up and down completely randomly.

Pair Corralation between Polar Capital and Alfa Financial

Assuming the 90 days trading horizon Polar Capital is expected to generate 1.05 times less return on investment than Alfa Financial. But when comparing it to its historical volatility, Polar Capital Technology is 1.63 times less risky than Alfa Financial. It trades about 0.18 of its potential returns per unit of risk. Alfa Financial Software is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  18,847  in Alfa Financial Software on September 3, 2024 and sell it today you would earn a total of  3,203  from holding Alfa Financial Software or generate 16.99% return on investment over 90 days.

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

Polar Capital Technology  vs.  Alfa Financial Software

Polar Capital Technology

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Polar Capital Technology are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Polar Capital exhibited solid returns over the last few months and may actually be approaching a breakup point.

Alfa Financial Software

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa Financial Software are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Alfa Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Polar Capital and Alfa Financial

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

The idea behind Polar Capital Technology and Alfa Financial Software 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.