Correlation Between Axalta Coating and Alto Ingredients

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

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

Diversification Opportunities for Axalta Coating and Alto Ingredients

0.1

Correlation Coefficient

Axalta Coating  Alto Ingredients

Average diversification

The 3 months correlation between Axalta and Alto is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Axalta Coating Systems and Alto Ingredients in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alto Ingredients and Axalta Coating 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 Axalta Coating Systems 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 Axalta Coating i.e., Axalta Coating and Alto Ingredients go up and down completely randomly.

Pair Corralation between Axalta Coating and Alto Ingredients

Given the investment horizon of 90 days Axalta Coating Systems is expected to under-perform the Alto Ingredients. But the stock apears to be less risky and, when comparing its historical volatility, Axalta Coating Systems is 2.64 times less risky than Alto Ingredients. The stock trades about -0.18 of its potential returns per unit of risk. The Alto Ingredients is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  198.00  in Alto Ingredients on January 20, 2024 and sell it today you would lose (7.00) from holding Alto Ingredients or give up 3.54% of portfolio value over 90 days.

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

Axalta Coating Systems  vs.  Alto Ingredients

Axalta Coating Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Axalta Coating Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Axalta Coating is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the 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 Axalta Coating and Alto Ingredients

The main advantage of trading using opposite Axalta Coating and Alto Ingredients positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Axalta Coating 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 Axalta Coating Systems 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.