Correlation Between Vestas Wind and ALK Abell
Can any of the company-specific risk be diversified away by investing in both Vestas Wind and ALK Abell 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 Vestas Wind and ALK Abell into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vestas Wind Systems and ALK Abell AS, you can compare the effects of market volatilities on Vestas Wind and ALK Abell 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 Vestas Wind with a short position of ALK Abell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vestas Wind and ALK Abell.
Diversification Opportunities for Vestas Wind and ALK Abell
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vestas and ALK is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Vestas Wind Systems and ALK Abell AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALK Abell AS and Vestas Wind 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 Vestas Wind Systems are associated (or correlated) with ALK Abell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALK Abell AS has no effect on the direction of Vestas Wind i.e., Vestas Wind and ALK Abell go up and down completely randomly.
Pair Corralation between Vestas Wind and ALK Abell
Assuming the 90 days trading horizon Vestas Wind Systems is expected to under-perform the ALK Abell. In addition to that, Vestas Wind is 1.56 times more volatile than ALK Abell AS. It trades about -0.16 of its total potential returns per unit of risk. ALK Abell AS is currently generating about 0.0 per unit of volatility. If you would invest 16,360 in ALK Abell AS on September 2, 2024 and sell it today you would lose (160.00) from holding ALK Abell AS or give up 0.98% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vestas Wind Systems vs. ALK Abell AS
Performance |
| Timeline |
| Vestas Wind Systems |
| ALK Abell AS |
Vestas Wind and ALK Abell Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vestas Wind and ALK Abell
The main advantage of trading using opposite Vestas Wind and ALK Abell positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vestas Wind position performs unexpectedly, ALK Abell 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 ALK Abell will offset losses from the drop in ALK Abell's long position.The idea behind Vestas Wind Systems and ALK Abell AS 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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