Correlation Between SW Seed and Alico
Can any of the company-specific risk be diversified away by investing in both SW Seed and Alico 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 SW Seed and Alico into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SW Seed Company and Alico Inc, you can compare the effects of market volatilities on SW Seed and Alico 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 SW Seed with a short position of Alico. Check out your portfolio center. Please also check ongoing floating volatility patterns of SW Seed and Alico.
Diversification Opportunities for SW Seed and Alico
Poor diversification
The 3 months correlation between SANW and Alico is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding SW Seed Company and Alico Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alico Inc and SW Seed 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 SW Seed Company are associated (or correlated) with Alico. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alico Inc has no effect on the direction of SW Seed i.e., SW Seed and Alico go up and down completely randomly.
Pair Corralation between SW Seed and Alico
Given the investment horizon of 90 days SW Seed Company is expected to generate 6.61 times more return on investment than Alico. However, SW Seed is 6.61 times more volatile than Alico Inc. It trades about 0.42 of its potential returns per unit of risk. Alico Inc is currently generating about 0.08 per unit of risk. If you would invest 247.00 in SW Seed Company on August 27, 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 |
SW Seed Company vs. Alico Inc
Performance |
| Timeline |
| SW Seed Company |
| Alico Inc |
SW Seed and Alico Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SW Seed and Alico
The main advantage of trading using opposite SW Seed and Alico positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SW Seed position performs unexpectedly, Alico 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 Alico will offset losses from the drop in Alico's long position.The idea behind SW Seed Company and Alico Inc 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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