Correlation Between Alto Ingredients and Adams Resources

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

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

Diversification Opportunities for Alto Ingredients and Adams Resources

0.35

Correlation Coefficient

Alto Ingredients  Adams Resources

Weak diversification

The 3 months correlation between Alto and Adams is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Alto Ingredients and Adams Resources Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adams Resources Energy and Alto Ingredients 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 Alto Ingredients are associated (or correlated) with Adams Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adams Resources Energy has no effect on the direction of Alto Ingredients i.e., Alto Ingredients and Adams Resources go up and down completely randomly.

Pair Corralation between Alto Ingredients and Adams Resources

Given the investment horizon of 90 days Alto Ingredients is expected to under-perform the Adams Resources. In addition to that, Alto Ingredients is 2.55 times more volatile than Adams Resources Energy. It trades about -0.03 of its total potential returns per unit of risk. Adams Resources Energy is currently generating about -0.02 per unit of volatility. If you would invest  3,327  in Adams Resources Energy on January 23, 2024 and sell it today you would lose (426.00) from holding Adams Resources Energy or give up 12.8% of portfolio value over 90 days.

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

Alto Ingredients  vs.  Adams Resources Energy

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.

Adams Resources Energy

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Adams Resources Energy are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting technical and fundamental indicators, Adams Resources exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alto Ingredients and Adams Resources

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

The idea behind Alto Ingredients and Adams Resources Energy 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.