Correlation Between Alico and SW Seed
Can any of the company-specific risk be diversified away by investing in both Alico and SW Seed 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 Alico and SW Seed into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alico Inc and SW Seed Company, you can compare the effects of market volatilities on Alico and SW Seed 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 Alico with a short position of SW Seed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alico and SW Seed.
Diversification Opportunities for Alico and SW Seed
Poor diversification
The 3 months correlation between Alico and SANW is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Alico Inc and SW Seed Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SW Seed Company and Alico 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 Alico Inc are associated (or correlated) with SW Seed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SW Seed Company has no effect on the direction of Alico i.e., Alico and SW Seed go up and down completely randomly.
Pair Corralation between Alico and SW Seed
Given the investment horizon of 90 days Alico is expected to generate 33.78 times less return on investment than SW Seed. But when comparing it to its historical volatility, Alico Inc is 6.61 times less risky than SW Seed. It trades about 0.08 of its potential returns per unit of risk. SW Seed Company is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest 247.00 in SW Seed Company on August 28, 2024 and sell it today you would earn a total of 503.00 from holding SW Seed Company or generate 203.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Alico Inc vs. SW Seed Company
Performance |
| Timeline |
| Alico Inc |
| SW Seed Company |
Alico and SW Seed Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alico and SW Seed
The main advantage of trading using opposite Alico and SW Seed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alico position performs unexpectedly, SW Seed 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 SW Seed will offset losses from the drop in SW Seed's long position.The idea behind Alico Inc and SW Seed Company 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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