Correlation Between Alamo and Rev

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

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

Diversification Opportunities for Alamo and Rev

-0.47

Correlation Coefficient

Alamo  Rev

Very good diversification

The 3 months correlation between Alamo and Rev is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Alamo Group and Rev Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rev Group 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 Rev. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rev Group has no effect on the direction of Alamo i.e., Alamo and Rev go up and down completely randomly.

Pair Corralation between Alamo and Rev

Considering the 90-day investment horizon Alamo Group is expected to under-perform the Rev. But the stock apears to be less risky and, when comparing its historical volatility, Alamo Group is 2.22 times less risky than Rev. The stock trades about -0.03 of its potential returns per unit of risk. The Rev Group is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,917  in Rev Group on November 19, 2024 and sell it today you would earn a total of  446.00  from holding Rev Group or generate 15.29% return on investment over 90 days.

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

Alamo Group  vs.  Rev Group

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 nearly stable essential indicators, Alamo is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Rev Group

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rev Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Rev reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alamo and Rev

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

The idea behind Alamo Group and Rev Group 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.