Correlation Between Alamo and NikolaCorp

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Can any of the company-specific risk be diversified away by investing in both Alamo and NikolaCorp 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 NikolaCorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alamo Group and NikolaCorp, you can compare the effects of market volatilities on Alamo and NikolaCorp 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 NikolaCorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alamo and NikolaCorp.

Diversification Opportunities for Alamo and NikolaCorp

0.53
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Alamo and NikolaCorp is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Alamo Group and NikolaCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NikolaCorp 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 NikolaCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NikolaCorp has no effect on the direction of Alamo i.e., Alamo and NikolaCorp go up and down completely randomly.

Pair Corralation between Alamo and NikolaCorp

Considering the 90-day investment horizon Alamo is expected to generate 3.14 times less return on investment than NikolaCorp. But when comparing it to its historical volatility, Alamo Group is 4.32 times less risky than NikolaCorp. It trades about 0.15 of its potential returns per unit of risk. NikolaCorp is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  64.00  in NikolaCorp on January 13, 2024 and sell it today you would earn a total of  8.00  from holding NikolaCorp or generate 12.5% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.45%
ValuesDaily Returns

Alamo Group  vs.  NikolaCorp

 Performance 
       Timeline  
Alamo Group 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Alamo Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting essential indicators, Alamo may actually be approaching a critical reversion point that can send shares even higher in May 2024.
NikolaCorp 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in NikolaCorp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating essential indicators, NikolaCorp sustained solid returns over the last few months and may actually be approaching a breakup point.

Alamo and NikolaCorp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alamo and NikolaCorp

The main advantage of trading using opposite Alamo and NikolaCorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alamo position performs unexpectedly, NikolaCorp 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 NikolaCorp will offset losses from the drop in NikolaCorp's long position.
The idea behind Alamo Group and NikolaCorp 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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