Correlation Between Alamo and American Premium
Can any of the company-specific risk be diversified away by investing in both Alamo and American Premium 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 Alamo and American Premium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alamo Group and American Premium Water, you can compare the effects of market volatilities on Alamo and American Premium 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 Alamo with a short position of American Premium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alamo and American Premium.
Diversification Opportunities for Alamo and American Premium
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Alamo and American is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Alamo Group and American Premium Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Premium Water and Alamo 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 Alamo Group are associated (or correlated) with American Premium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Premium Water has no effect on the direction of Alamo i.e., Alamo and American Premium go up and down completely randomly.
Pair Corralation between Alamo and American Premium
Considering the 90-day investment horizon Alamo is expected to generate 289.99 times less return on investment than American Premium. But when comparing it to its historical volatility, Alamo Group is 84.73 times less risky than American Premium. It trades about 0.05 of its potential returns per unit of risk. American Premium Water is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 0.07 in American Premium Water on August 26, 2024 and sell it today you would lose (0.06) from holding American Premium Water or give up 85.71% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 88.89% |
| Values | Daily Returns |
Alamo Group vs. American Premium Water
Performance |
| Timeline |
| Alamo Group |
| American Premium Water |
Alamo and American Premium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alamo and American Premium
The main advantage of trading using opposite Alamo and American Premium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alamo position performs unexpectedly, American Premium 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 American Premium will offset losses from the drop in American Premium's long position.| Alamo vs. Hyster Yale Materials Handling | Alamo vs. Columbus McKinnon | Alamo vs. AGCO Corporation | Alamo vs. Titan International |
| American Premium vs. Morgan Stanley | American Premium vs. Goldman Sachs Group | American Premium vs. Charles Schwab Corp | American Premium vs. Interactive Brokers Group |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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