Correlation Between Alumina Limited and Applied Industrial

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

By analyzing existing cross correlation between Alumina Limited PK and Applied Industrial Technologies, you can compare the effects of market volatilities on Alumina Limited and Applied Industrial 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 Alumina Limited with a short position of Applied Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alumina Limited and Applied Industrial.

Diversification Opportunities for Alumina Limited and Applied Industrial

0.18

Correlation Coefficient

Alumina Limited  Applied Industrial

Average diversification

The 3 months correlation between Alumina and Applied is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Alumina Limited PK and Applied Industrial Technologie in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Industrial and Alumina Limited 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 Alumina Limited PK are associated (or correlated) with Applied Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Industrial has no effect on the direction of Alumina Limited i.e., Alumina Limited and Applied Industrial go up and down completely randomly.

Pair Corralation between Alumina Limited and Applied Industrial

Assuming the 90 days horizon Alumina Limited PK is expected to generate 2.0 times more return on investment than Applied Industrial. However, Alumina Limited is 2.0 times more volatile than Applied Industrial Technologies. It trades about 0.24 of its potential returns per unit of risk. Applied Industrial Technologies is currently generating about 0.07 per unit of risk. If you would invest  281.00  in Alumina Limited PK on February 10, 2024 and sell it today you would earn a total of  132.00  from holding Alumina Limited PK or generate 46.98% return on investment over 90 days.

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

Alumina Limited PK  vs.  Applied Industrial Technologie

Alumina Limited PK

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alumina Limited PK are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile primary indicators, Alumina Limited showed solid returns over the last few months and may actually be approaching a breakup point.

Applied Industrial

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Industrial Technologies are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward indicators, Applied Industrial is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Alumina Limited and Applied Industrial

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

The idea behind Alumina Limited PK and Applied Industrial Technologies 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.