Correlation Between Solar Alliance and Madison Pacific

Can any of the company-specific risk be diversified away by investing in both Solar Alliance and Madison Pacific 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 Madison Pacific 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 Madison Pacific Properties, you can compare the effects of market volatilities on Solar Alliance and Madison Pacific 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 Madison Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Solar Alliance and Madison Pacific.

Diversification Opportunities for Solar Alliance and Madison Pacific

-0.39

Correlation Coefficient

Solar Alliance  Madison Pacific

Very good diversification

The 3 months correlation between Solar and Madison is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Solar Alliance Energy and Madison Pacific Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Pacific Prop 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 Madison Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Pacific Prop has no effect on the direction of Solar Alliance i.e., Solar Alliance and Madison Pacific go up and down completely randomly.

Pair Corralation between Solar Alliance and Madison Pacific

Assuming the 90 days trading horizon Solar Alliance is expected to generate 1.45 times less return on investment than Madison Pacific. In addition to that, Solar Alliance is 2.93 times more volatile than Madison Pacific Properties. It trades about 0.02 of its total potential returns per unit of risk. Madison Pacific Properties is currently generating about 0.07 per unit of volatility. If you would invest  224.00  in Madison Pacific Properties on October 5, 2024 and sell it today you would earn a total of  276.00  from holding Madison Pacific Properties or generate 123.21% return on investment over 90 days.

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

Solar Alliance Energy  vs.  Madison Pacific Properties

Solar Alliance Energy

Risk-Adjusted Performance

0 of 100

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 latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Madison Pacific Prop

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Madison Pacific Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Madison Pacific is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Solar Alliance and Madison Pacific

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

The idea behind Solar Alliance Energy and Madison Pacific Properties 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.