Correlation Between ALM Equity and Nexam Chemical

Can any of the company-specific risk be diversified away by investing in both ALM Equity and Nexam Chemical 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 Nexam Chemical 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 Nexam Chemical Holding, you can compare the effects of market volatilities on ALM Equity and Nexam Chemical 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 Nexam Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of ALM Equity and Nexam Chemical.

Diversification Opportunities for ALM Equity and Nexam Chemical

0.67

Correlation Coefficient

ALM Equity  Nexam Chemical

Poor diversification

The 3 months correlation between ALM and Nexam is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding ALM Equity AB and Nexam Chemical Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nexam Chemical Holding 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 Nexam Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nexam Chemical Holding has no effect on the direction of ALM Equity i.e., ALM Equity and Nexam Chemical go up and down completely randomly.

Pair Corralation between ALM Equity and Nexam Chemical

Assuming the 90 days trading horizon ALM Equity is expected to generate 3.03 times less return on investment than Nexam Chemical. But when comparing it to its historical volatility, ALM Equity AB is 5.35 times less risky than Nexam Chemical. It trades about 0.15 of its potential returns per unit of risk. Nexam Chemical Holding is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  330.00  in Nexam Chemical Holding on April 21, 2025 and sell it today you would earn a total of  46.00  from holding Nexam Chemical Holding or generate 13.94% return on investment over 90 days.

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

ALM Equity AB  vs.  Nexam Chemical Holding

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 11 (%) 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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Nexam Chemical Holding

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nexam Chemical Holding are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Nexam Chemical unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ALM Equity and Nexam Chemical

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

The idea behind ALM Equity AB and Nexam Chemical Holding 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.