Correlation Between Alamo and Austin Engineering

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

By analyzing existing cross correlation between Alamo Group and Austin Engineering Limited, you can compare the effects of market volatilities on Alamo and Austin Engineering 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 Alamo with a short position of Austin Engineering. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alamo and Austin Engineering.

Diversification Opportunities for Alamo and Austin Engineering

-0.58

Correlation Coefficient

Alamo  Austin Engineering

Excellent diversification

The 3 months correlation between Alamo and Austin is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Alamo Group and Austin Engineering Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Austin Engineering and Alamo 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 Alamo Group are associated (or correlated) with Austin Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Austin Engineering has no effect on the direction of Alamo i.e., Alamo and Austin Engineering go up and down completely randomly.

Pair Corralation between Alamo and Austin Engineering

Considering the 90-day investment horizon Alamo Group is expected to under-perform the Austin Engineering. But the stock apears to be less risky and, when comparing its historical volatility, Alamo Group is 5.47 times less risky than Austin Engineering. The stock trades about -0.09 of its potential returns per unit of risk. The Austin Engineering Limited is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  30.00  in Austin Engineering Limited on November 28, 2024 and sell it today you would lose (1.00) from holding Austin Engineering Limited or give up 3.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	92.06%
Values	Daily Returns

Alamo Group  vs.  Austin Engineering Limited

Alamo Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alamo Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Austin Engineering

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Austin Engineering Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Austin Engineering may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Alamo and Austin Engineering

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

The idea behind Alamo Group and Austin Engineering Limited 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.

Check out your portfolio center.

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.