Correlation Between Alta Equipment and Aarons

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

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

Diversification Opportunities for Alta Equipment and Aarons

-0.42

Correlation Coefficient

Alta Equipment  Aarons

Very good diversification

The 3 months correlation between Alta and Aarons is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Alta Equipment Group and The Aarons in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aarons and Alta Equipment 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 Alta Equipment Group are associated (or correlated) with Aarons. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aarons has no effect on the direction of Alta Equipment i.e., Alta Equipment and Aarons go up and down completely randomly.

Pair Corralation between Alta Equipment and Aarons

Given the investment horizon of 90 days Alta Equipment Group is expected to generate 0.8 times more return on investment than Aarons. However, Alta Equipment Group is 1.25 times less risky than Aarons. It trades about 0.06 of its potential returns per unit of risk. The Aarons is currently generating about -0.14 per unit of risk. If you would invest  1,075  in Alta Equipment Group on January 19, 2024 and sell it today you would earn a total of  93.00  from holding Alta Equipment Group or generate 8.65% return on investment over 90 days.

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

Alta Equipment Group  vs.  The Aarons

Alta Equipment Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alta Equipment Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Alta Equipment may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Aarons

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Aarons has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Alta Equipment and Aarons

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

The idea behind Alta Equipment Group and The Aarons 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.