Correlation Between Alfa Laval and Generac Holdings

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

By analyzing existing cross correlation between Alfa Laval AB and Generac Holdings, you can compare the effects of market volatilities on Alfa Laval and Generac Holdings 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 Alfa Laval with a short position of Generac Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alfa Laval and Generac Holdings.

Diversification Opportunities for Alfa Laval and Generac Holdings

0.63

Correlation Coefficient

Alfa Laval  Generac Holdings

Poor diversification

The 3 months correlation between Alfa and Generac is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Alfa Laval AB and Generac Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Generac Holdings and Alfa Laval 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 Alfa Laval AB are associated (or correlated) with Generac Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Generac Holdings has no effect on the direction of Alfa Laval i.e., Alfa Laval and Generac Holdings go up and down completely randomly.

Pair Corralation between Alfa Laval and Generac Holdings

Assuming the 90 days horizon Alfa Laval AB is expected to generate 0.66 times more return on investment than Generac Holdings. However, Alfa Laval AB is 1.52 times less risky than Generac Holdings. It trades about 0.1 of its potential returns per unit of risk. Generac Holdings is currently generating about 0.06 per unit of risk. If you would invest  2,405  in Alfa Laval AB on September 3, 2024 and sell it today you would earn a total of  2,143  from holding Alfa Laval AB or generate 89.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	70.1%
Values	Daily Returns

Alfa Laval AB  vs.  Generac Holdings

Alfa Laval AB

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa Laval AB are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Alfa Laval is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Generac Holdings

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Generac Holdings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Generac Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alfa Laval and Generac Holdings

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

The idea behind Alfa Laval AB and Generac Holdings 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.