Correlation Between Alta Equipment and China Aircraft

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

By analyzing existing cross correlation between Alta Equipment Group and China Aircraft Leasing, you can compare the effects of market volatilities on Alta Equipment and China Aircraft 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 Alta Equipment with a short position of China Aircraft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alta Equipment and China Aircraft.

Diversification Opportunities for Alta Equipment and China Aircraft

-0.86

Correlation Coefficient

Alta Equipment  China Aircraft

Pay attention - limited upside

The 3 months correlation between Alta and China is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Alta Equipment Group and China Aircraft Leasing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Aircraft Leasing and Alta Equipment 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 Alta Equipment Group are associated (or correlated) with China Aircraft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Aircraft Leasing has no effect on the direction of Alta Equipment i.e., Alta Equipment and China Aircraft go up and down completely randomly.

Pair Corralation between Alta Equipment and China Aircraft

Assuming the 90 days trading horizon Alta Equipment is expected to generate 4.98 times less return on investment than China Aircraft. But when comparing it to its historical volatility, Alta Equipment Group is 2.19 times less risky than China Aircraft. It trades about 0.03 of its potential returns per unit of risk. China Aircraft Leasing is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  13.00  in China Aircraft Leasing on September 24, 2024 and sell it today you would earn a total of  27.00  from holding China Aircraft Leasing or generate 207.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.99%
Values	Daily Returns

Alta Equipment Group  vs.  China Aircraft Leasing

Alta Equipment Group

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alta Equipment Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Alta Equipment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Aircraft Leasing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Aircraft Leasing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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.

Pair Trading with Alta Equipment and China Aircraft

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

The idea behind Alta Equipment Group and China Aircraft Leasing 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.