Correlation Between PACCAR and Alamo
Can any of the company-specific risk be diversified away by investing in both PACCAR and Alamo 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 PACCAR and Alamo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PACCAR Inc and Alamo Group, you can compare the effects of market volatilities on PACCAR and Alamo 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 PACCAR with a short position of Alamo. Check out your portfolio center. Please also check ongoing floating volatility patterns of PACCAR and Alamo.
Diversification Opportunities for PACCAR and Alamo
Poor diversification
The 3 months correlation between PACCAR and Alamo is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and Alamo Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alamo Group and PACCAR 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 PACCAR Inc are associated (or correlated) with Alamo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alamo Group has no effect on the direction of PACCAR i.e., PACCAR and Alamo go up and down completely randomly.
Pair Corralation between PACCAR and Alamo
Given the investment horizon of 90 days PACCAR Inc is expected to generate 0.85 times more return on investment than Alamo. However, PACCAR Inc is 1.18 times less risky than Alamo. It trades about 0.26 of its potential returns per unit of risk. Alamo Group is currently generating about -0.08 per unit of risk. If you would invest 10,470 in PACCAR Inc on October 23, 2024 and sell it today you would earn a total of 563.00 from holding PACCAR Inc or generate 5.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
PACCAR Inc vs. Alamo Group
Performance |
| Timeline |
| PACCAR Inc |
| Alamo Group |
PACCAR and Alamo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PACCAR and Alamo
The main advantage of trading using opposite PACCAR and Alamo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PACCAR position performs unexpectedly, Alamo 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 Alamo will offset losses from the drop in Alamo's long position.The idea behind PACCAR Inc and Alamo Group 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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