Correlation Between Albemarle Corp and Alto Ingredients

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

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

Diversification Opportunities for Albemarle Corp and Alto Ingredients

-0.55

Correlation Coefficient

Albemarle Corp  Alto Ingredients

Excellent diversification

The 3 months correlation between Albemarle and Alto is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Albemarle Corp and Alto Ingredients in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alto Ingredients and Albemarle Corp 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 Albemarle Corp 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 Albemarle Corp i.e., Albemarle Corp and Alto Ingredients go up and down completely randomly.

Pair Corralation between Albemarle Corp and Alto Ingredients

Considering the 90-day investment horizon Albemarle Corp is expected to generate 9.56 times less return on investment than Alto Ingredients. But when comparing it to its historical volatility, Albemarle Corp is 1.75 times less risky than Alto Ingredients. It trades about 0.02 of its potential returns per unit of risk. Alto Ingredients is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  163.00  in Alto Ingredients on October 25, 2024 and sell it today you would earn a total of  11.00  from holding Alto Ingredients or generate 6.75% return on investment over 90 days.

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

Albemarle Corp  vs.  Alto Ingredients

Albemarle Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Albemarle Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Albemarle Corp 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

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alto Ingredients are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Alto Ingredients displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Albemarle Corp and Alto Ingredients

The main advantage of trading using opposite Albemarle Corp and Alto Ingredients positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Albemarle Corp 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 Albemarle Corp 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.