Correlation Between Alarm Holdings and Bentley SystemsInc

Can any of the company-specific risk be diversified away by investing in both Alarm Holdings and Bentley SystemsInc 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 Alarm Holdings and Bentley SystemsInc into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alarm Holdings and Bentley SystemsInc, you can compare the effects of market volatilities on Alarm Holdings and Bentley SystemsInc 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 Alarm Holdings with a short position of Bentley SystemsInc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alarm Holdings and Bentley SystemsInc.

Diversification Opportunities for Alarm Holdings and Bentley SystemsInc

-0.39

Correlation Coefficient

Alarm Holdings  Bentley SystemsInc

Very good diversification

The 3 months correlation between Alarm and Bentley is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Alarm Holdings and Bentley SystemsInc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bentley SystemsInc and Alarm Holdings 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 Alarm Holdings are associated (or correlated) with Bentley SystemsInc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bentley SystemsInc has no effect on the direction of Alarm Holdings i.e., Alarm Holdings and Bentley SystemsInc go up and down completely randomly.

Pair Corralation between Alarm Holdings and Bentley SystemsInc

Given the investment horizon of 90 days Alarm Holdings is expected to generate 16.1 times less return on investment than Bentley SystemsInc. But when comparing it to its historical volatility, Alarm Holdings is 1.47 times less risky than Bentley SystemsInc. It trades about 0.01 of its potential returns per unit of risk. Bentley SystemsInc is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,227  in Bentley SystemsInc on February 19, 2024 and sell it today you would earn a total of  419.00  from holding Bentley SystemsInc or generate 8.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Alarm Holdings  vs.  Bentley SystemsInc

Alarm Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alarm Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Alarm Holdings is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Bentley SystemsInc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bentley SystemsInc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Bentley SystemsInc may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Alarm Holdings and Bentley SystemsInc

The main advantage of trading using opposite Alarm Holdings and Bentley SystemsInc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alarm Holdings position performs unexpectedly, Bentley SystemsInc 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 Bentley SystemsInc will offset losses from the drop in Bentley SystemsInc's long position.

The idea behind Alarm Holdings and Bentley SystemsInc 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.

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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.