Correlation Between Solar Alliance and Income Financial

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

By analyzing existing cross correlation between Solar Alliance Energy and Income Financial Trust, you can compare the effects of market volatilities on Solar Alliance and Income 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 Solar Alliance with a short position of Income Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Solar Alliance and Income Financial.

Diversification Opportunities for Solar Alliance and Income Financial

0.68

Correlation Coefficient

Solar Alliance  Income Financial

Poor diversification

The 3 months correlation between Solar and Income is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Solar Alliance Energy and Income Financial Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Income Financial Trust and Solar Alliance 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 Solar Alliance Energy are associated (or correlated) with Income Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Income Financial Trust has no effect on the direction of Solar Alliance i.e., Solar Alliance and Income Financial go up and down completely randomly.

Pair Corralation between Solar Alliance and Income Financial

Assuming the 90 days trading horizon Solar Alliance Energy is not expected to generate positive returns. Moreover, Solar Alliance is 7.14 times more volatile than Income Financial Trust. It trades away all of its potential returns to assume current level of volatility. Income Financial Trust is currently generating about -0.05 per unit of risk. If you would invest  3.00  in Solar Alliance Energy on December 30, 2024 and sell it today you would lose (1.00) from holding Solar Alliance Energy or give up 33.33% of portfolio value over 90 days.

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

Solar Alliance Energy  vs.  Income Financial Trust

Solar Alliance Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Solar Alliance Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable essential indicators, Solar Alliance is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Income Financial Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Income Financial Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Income Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Solar Alliance and Income Financial

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

The idea behind Solar Alliance Energy and Income Financial Trust 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..