Correlation Between ALM Equity and Linc AB

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

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

Diversification Opportunities for ALM Equity and Linc AB

0.7

Correlation Coefficient

ALM Equity  Linc AB

Poor diversification

The 3 months correlation between ALM and Linc is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding ALM Equity AB and Linc AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Linc AB and ALM Equity 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 ALM Equity AB are associated (or correlated) with Linc AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Linc AB has no effect on the direction of ALM Equity i.e., ALM Equity and Linc AB go up and down completely randomly.

Pair Corralation between ALM Equity and Linc AB

Assuming the 90 days trading horizon ALM Equity is expected to generate 1.56 times less return on investment than Linc AB. But when comparing it to its historical volatility, ALM Equity AB is 2.97 times less risky than Linc AB. It trades about 0.16 of its potential returns per unit of risk. Linc AB is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  6,815  in Linc AB on April 23, 2025 and sell it today you would earn a total of  565.00  from holding Linc AB or generate 8.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

ALM Equity AB  vs.  Linc AB

ALM Equity AB

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ALM Equity AB are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, ALM Equity is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Linc AB

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Linc AB are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Linc AB may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with ALM Equity and Linc AB

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

The idea behind ALM Equity AB and Linc AB 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.