Correlation Between TF Bank and ALM Equity

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

By analyzing existing cross correlation between TF Bank AB and ALM Equity AB, you can compare the effects of market volatilities on TF Bank and ALM Equity 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 TF Bank with a short position of ALM Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of TF Bank and ALM Equity.

Diversification Opportunities for TF Bank and ALM Equity

-0.73

Correlation Coefficient

TF Bank  ALM Equity

Pay attention - limited upside

The 3 months correlation between TFBANK and ALM is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding TF Bank AB and ALM Equity AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALM Equity AB and TF Bank 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 TF Bank AB are associated (or correlated) with ALM Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALM Equity AB has no effect on the direction of TF Bank i.e., TF Bank and ALM Equity go up and down completely randomly.

Pair Corralation between TF Bank and ALM Equity

Assuming the 90 days trading horizon TF Bank AB is expected to generate 2.1 times more return on investment than ALM Equity. However, TF Bank is 2.1 times more volatile than ALM Equity AB. It trades about 0.08 of its potential returns per unit of risk. ALM Equity AB is currently generating about 0.02 per unit of risk. If you would invest  18,300  in TF Bank AB on October 10, 2024 and sell it today you would earn a total of  22,100  from holding TF Bank AB or generate 120.77% return on investment over 90 days.

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

TF Bank AB  vs.  ALM Equity AB

TF Bank AB

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TF Bank AB are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, TF Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

ALM Equity AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALM Equity AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, ALM Equity is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with TF Bank and ALM Equity

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

The idea behind TF Bank AB and ALM Equity AB 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.