Correlation Between ALFORMER Industrial and Elite Material
Can any of the company-specific risk be diversified away by investing in both ALFORMER Industrial and Elite Material 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 ALFORMER Industrial and Elite Material into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ALFORMER Industrial Co and Elite Material Co, you can compare the effects of market volatilities on ALFORMER Industrial and Elite Material 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 ALFORMER Industrial with a short position of Elite Material. Check out your portfolio center. Please also check ongoing floating volatility patterns of ALFORMER Industrial and Elite Material.
Diversification Opportunities for ALFORMER Industrial and Elite Material
-0.78 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between ALFORMER and Elite is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding ALFORMER Industrial Co and Elite Material Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elite Material and ALFORMER Industrial 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 ALFORMER Industrial Co are associated (or correlated) with Elite Material. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elite Material has no effect on the direction of ALFORMER Industrial i.e., ALFORMER Industrial and Elite Material go up and down completely randomly.
Pair Corralation between ALFORMER Industrial and Elite Material
Assuming the 90 days trading horizon ALFORMER Industrial is expected to generate 2.99 times less return on investment than Elite Material. But when comparing it to its historical volatility, ALFORMER Industrial Co is 1.1 times less risky than Elite Material. It trades about 0.04 of its potential returns per unit of risk. Elite Material Co is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 19,150 in Elite Material Co on November 2, 2024 and sell it today you would earn a total of 42,250 from holding Elite Material Co or generate 220.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
ALFORMER Industrial Co vs. Elite Material Co
Performance |
| Timeline |
| ALFORMER Industrial |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Elite Material |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Solid
ALFORMER Industrial and Elite Material Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ALFORMER Industrial and Elite Material
The main advantage of trading using opposite ALFORMER Industrial and Elite Material positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ALFORMER Industrial position performs unexpectedly, Elite Material 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 Elite Material will offset losses from the drop in Elite Material's long position.The idea behind ALFORMER Industrial Co and Elite Material Co 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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