Correlation Between Avantor and Alto Ingredients

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

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

Diversification Opportunities for Avantor and Alto Ingredients

0.53

Correlation Coefficient

Avantor  Alto Ingredients

Very weak diversification

The 3 months correlation between Avantor and Alto is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Avantor and Alto Ingredients in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alto Ingredients and Avantor 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 Avantor 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 Avantor i.e., Avantor and Alto Ingredients go up and down completely randomly.

Pair Corralation between Avantor and Alto Ingredients

Given the investment horizon of 90 days Avantor is expected to generate 0.94 times more return on investment than Alto Ingredients. However, Avantor is 1.06 times less risky than Alto Ingredients. It trades about 0.21 of its potential returns per unit of risk. Alto Ingredients is currently generating about 0.12 per unit of risk. If you would invest  1,972  in Avantor on September 20, 2024 and sell it today you would earn a total of  139.00  from holding Avantor or generate 7.05% return on investment over 90 days.

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

Avantor  vs.  Alto Ingredients

Avantor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avantor has generated negative risk-adjusted returns adding no value to investors with long positions. Even with inconsistent performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

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 Avantor and Alto Ingredients

The main advantage of trading using opposite Avantor and Alto Ingredients positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avantor 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 Avantor 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.

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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.