Correlation Between Alior Bank and Next PLC
Can any of the company-specific risk be diversified away by investing in both Alior Bank and Next PLC 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 Alior Bank and Next PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alior Bank SA and Next PLC, you can compare the effects of market volatilities on Alior Bank and Next PLC 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 Alior Bank with a short position of Next PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alior Bank and Next PLC.
Diversification Opportunities for Alior Bank and Next PLC
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Alior and Next is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Alior Bank SA and Next PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Next PLC and Alior 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 Alior Bank SA are associated (or correlated) with Next PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Next PLC has no effect on the direction of Alior Bank i.e., Alior Bank and Next PLC go up and down completely randomly.
Pair Corralation between Alior Bank and Next PLC
Assuming the 90 days trading horizon Alior Bank is expected to generate 6.18 times less return on investment than Next PLC. In addition to that, Alior Bank is 1.26 times more volatile than Next PLC. It trades about 0.01 of its total potential returns per unit of risk. Next PLC is currently generating about 0.07 per unit of volatility. If you would invest 792,248 in Next PLC on September 14, 2024 and sell it today you would earn a total of 184,752 from holding Next PLC or generate 23.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Alior Bank SA vs. Next PLC
Performance |
| Timeline |
| Alior Bank SA |
| Next PLC |
Alior Bank and Next PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alior Bank and Next PLC
The main advantage of trading using opposite Alior Bank and Next PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alior Bank position performs unexpectedly, Next PLC 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 Next PLC will offset losses from the drop in Next PLC's long position.| Alior Bank vs. Applied Materials | Alior Bank vs. Scandinavian Tobacco Group | Alior Bank vs. JB Hunt Transport | Alior Bank vs. Martin Marietta Materials |
| Next PLC vs. Herald Investment Trust | Next PLC vs. Ironveld Plc | Next PLC vs. Dentsply Sirona | Next PLC vs. Gamma Communications PLC |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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