Correlation Between DL Industries and Alto Ingredients

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

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

Diversification Opportunities for DL Industries and Alto Ingredients

0.24

Correlation Coefficient

DL Industries  Alto Ingredients

Modest diversification

The 3 months correlation between DLNDY and Alto is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding DL Industries ADR and Alto Ingredients in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alto Ingredients and DL Industries 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 DL Industries ADR 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 DL Industries i.e., DL Industries and Alto Ingredients go up and down completely randomly.

Pair Corralation between DL Industries and Alto Ingredients

Assuming the 90 days horizon DL Industries ADR is expected to under-perform the Alto Ingredients. But the pink sheet apears to be less risky and, when comparing its historical volatility, DL Industries ADR is 1.42 times less risky than Alto Ingredients. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Alto Ingredients is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  191.00  in Alto Ingredients on January 24, 2024 and sell it today you would lose (1.00) from holding Alto Ingredients or give up 0.52% of portfolio value over 90 days.

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

DL Industries ADR  vs.  Alto Ingredients

DL Industries ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DL Industries ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, DL Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Alto Ingredients

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alto Ingredients are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 DL Industries and Alto Ingredients

The main advantage of trading using opposite DL Industries and Alto Ingredients positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DL Industries 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 DL Industries ADR 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.