# Correlation Between My Neighbor and Alpha Finance

Can any of the company-specific risk be diversified away by investing in both My Neighbor and Alpha Finance 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 My Neighbor and Alpha Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between My Neighbor Alice and Alpha Finance Lab, you can compare the effects of market volatilities on My Neighbor and Alpha Finance 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 My Neighbor with a short position of Alpha Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of My Neighbor and Alpha Finance.

## Diversification Opportunities for My Neighbor and Alpha Finance

0.78 | Correlation Coefficient |

### Poor diversification

The 3 months correlation between ALICE and Alpha is

**0.78**. Overlapping area represents the amount of risk that can be diversified away by holding My Neighbor Alice and Alpha Finance Lab in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Alpha Finance Lab and My Neighbor 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 My Neighbor Alice are associated (or correlated) with Alpha Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alpha Finance Lab has no effect on the direction of My Neighbor i.e., My Neighbor and Alpha Finance go up and down completely randomly.## Pair Corralation between My Neighbor and Alpha Finance

Assuming the 90 days trading horizon My Neighbor Alice is expected to generate 1.16 times more return on investment than Alpha Finance. However, My Neighbor is 1.16 times more volatile than Alpha Finance Lab. It trades about -0.08 of its potential returns per unit of risk. Alpha Finance Lab is currently generating about -0.14 per unit of risk. If you would invest

**1,191**in My Neighbor Alice on**February 16, 2022**and sell it today you would**lose (931.00)**from holding My Neighbor Alice or give up**78.17%**of portfolio value over**90**days.Time Period | 3 Months [change] |

Direction | Moves Together |

Strength | Significant |

Accuracy | 100.0% |

Values | Daily Returns |

## My Neighbor Alice vs. Alpha Finance Lab

Performance (%) |

Timeline |

My Neighbor Alice |

Alpha Finance Lab |

## My Neighbor and Alpha Finance Volatility Contrast

Predicted Return Density |

Returns |

## Pair Trading with My Neighbor and Alpha Finance

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

### Pair trading matchups for My Neighbor

## Alpha Finance Lab

### Pair trading matchups for Alpha Finance

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 Transaction History module to view history of all your transactions and understand their impact on performance.

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