Correlation Between Alpha Metallurgical and SP Merval

Can any of the company-specific risk be diversified away by investing in both Alpha Metallurgical and SP Merval 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 Alpha Metallurgical and SP Merval into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alpha Metallurgical Resources and SP Merval, you can compare the effects of market volatilities on Alpha Metallurgical and SP Merval 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 Alpha Metallurgical with a short position of SP Merval. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alpha Metallurgical and SP Merval.

Diversification Opportunities for Alpha Metallurgical and SP Merval

Very weak diversification

The 3 months correlation between Alpha and MERV is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Alpha Metallurgical Resources and SP Merval in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP Merval and Alpha Metallurgical 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 Alpha Metallurgical Resources are associated (or correlated) with SP Merval. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP Merval has no effect on the direction of Alpha Metallurgical i.e., Alpha Metallurgical and SP Merval go up and down completely randomly.

Pair Corralation between Alpha Metallurgical and SP Merval

Considering the 90-day investment horizon Alpha Metallurgical is expected to generate 1.55 times less return on investment than SP Merval. But when comparing it to its historical volatility, Alpha Metallurgical Resources is 2.91 times less risky than SP Merval. It trades about 0.63 of its potential returns per unit of risk. SP Merval is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  58,497,000  in SP Merval on September 9, 2023 and sell it today you would earn a total of  30,953,200  from holding SP Merval or generate 52.91% return on investment over 90 days.

Alpha Metallurgical Resources  vs.  SP Merval

Pair Trading with Alpha Metallurgical and SP Merval

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

The idea behind Alpha Metallurgical Resources and SP Merval 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.