Correlation Between Alamo and Forestar

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

By analyzing existing cross correlation between Alamo Group and Forestar Group, you can compare the effects of market volatilities on Alamo and Forestar 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 Forestar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alamo and Forestar.

Diversification Opportunities for Alamo and Forestar

0.38

Correlation Coefficient

Alamo  Forestar

Weak diversification

The 3 months correlation between Alamo and Forestar is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Alamo Group and Forestar Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Forestar Group 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 Forestar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Forestar Group has no effect on the direction of Alamo i.e., Alamo and Forestar go up and down completely randomly.

Pair Corralation between Alamo and Forestar

Considering the 90-day investment horizon Alamo Group is expected to generate 0.47 times more return on investment than Forestar. However, Alamo Group is 2.13 times less risky than Forestar. It trades about -0.31 of its potential returns per unit of risk. Forestar Group is currently generating about -0.18 per unit of risk. If you would invest  21,613  in Alamo Group on February 4, 2024 and sell it today you would lose (2,216) from holding Alamo Group or give up 10.25% of portfolio value over 90 days.

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

Alamo Group  vs.  Forestar Group

Alamo Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alamo Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Forestar Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Forestar Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Forestar may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Alamo and Forestar

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

The idea behind Alamo Group and Forestar 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.

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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.