Correlation Between Albemarle and Alto Ingredients

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

By analyzing existing cross correlation between Albemarle and Alto Ingredients, you can compare the effects of market volatilities on Albemarle and Alto Ingredients 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 Albemarle with a short position of Alto Ingredients. Check out your portfolio center. Please also check ongoing floating volatility patterns of Albemarle and Alto Ingredients.

Diversification Opportunities for Albemarle and Alto Ingredients

-0.58

Correlation Coefficient

Albemarle  Alto Ingredients

Excellent diversification

The 3 months correlation between Albemarle and Alto is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Albemarle and Alto Ingredients in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alto Ingredients and Albemarle 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 Albemarle are associated (or correlated) with Alto Ingredients. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alto Ingredients has no effect on the direction of Albemarle i.e., Albemarle and Alto Ingredients go up and down completely randomly.

Pair Corralation between Albemarle and Alto Ingredients

Assuming the 90 days trading horizon Albemarle is expected to under-perform the Alto Ingredients. In addition to that, Albemarle is 1.39 times more volatile than Alto Ingredients. It trades about -0.23 of its total potential returns per unit of risk. Alto Ingredients is currently generating about 0.12 per unit of volatility. If you would invest  139.00  in Alto Ingredients on September 20, 2024 and sell it today you would earn a total of  6.00  from holding Alto Ingredients or generate 4.32% return on investment over 90 days.

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

Albemarle  vs.  Alto Ingredients

Albemarle

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Albemarle are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile fundamental drivers, Albemarle may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Alto Ingredients

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alto Ingredients has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Alto Ingredients is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Albemarle and Alto Ingredients

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

The idea behind Albemarle and Alto Ingredients 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.