Correlation Between Appfolio and Alarm Holdings

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

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

Diversification Opportunities for Appfolio and Alarm Holdings

0.62

Correlation Coefficient

Appfolio  Alarm Holdings

Poor diversification

The 3 months correlation between Appfolio and Alarm is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Appfolio and Alarm Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alarm Holdings and Appfolio 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 Appfolio are associated (or correlated) with Alarm Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alarm Holdings has no effect on the direction of Appfolio i.e., Appfolio and Alarm Holdings go up and down completely randomly.

Pair Corralation between Appfolio and Alarm Holdings

Given the investment horizon of 90 days Appfolio is expected to generate 1.22 times more return on investment than Alarm Holdings. However, Appfolio is 1.22 times more volatile than Alarm Holdings. It trades about 0.06 of its potential returns per unit of risk. Alarm Holdings is currently generating about 0.01 per unit of risk. If you would invest  10,278  in Appfolio on January 23, 2024 and sell it today you would earn a total of  10,572  from holding Appfolio or generate 102.86% return on investment over 90 days.

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

Appfolio  vs.  Alarm Holdings

Appfolio

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Appfolio are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Appfolio reported solid returns over the last few months and may actually be approaching a breakup point.

Alarm Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alarm Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Alarm Holdings is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Appfolio and Alarm Holdings

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

The idea behind Appfolio and Alarm Holdings 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 Transaction History module to view history of all your transactions and understand their impact on performance.