Correlation Between Alta Equipment and Nippon Steel

Can any of the company-specific risk be diversified away by investing in both Alta Equipment and Nippon Steel 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 Nippon Steel 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 Nippon Steel Corp, you can compare the effects of market volatilities on Alta Equipment and Nippon Steel 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 Nippon Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alta Equipment and Nippon Steel.

Diversification Opportunities for Alta Equipment and Nippon Steel

0.47

Correlation Coefficient

Alta Equipment  Nippon Steel

Very weak diversification

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

Pair Corralation between Alta Equipment and Nippon Steel

Given the investment horizon of 90 days Alta Equipment Group is expected to generate 2.06 times more return on investment than Nippon Steel. However, Alta Equipment is 2.06 times more volatile than Nippon Steel Corp. It trades about 0.1 of its potential returns per unit of risk. Nippon Steel Corp is currently generating about 0.01 per unit of risk. If you would invest  623.00  in Alta Equipment Group on October 23, 2024 and sell it today you would earn a total of  143.00  from holding Alta Equipment Group or generate 22.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Alta Equipment Group  vs.  Nippon Steel Corp

Alta Equipment Group

Risk-Adjusted Performance

8 of 100

Modest

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 nearly fragile basic indicators, Alta Equipment reported solid returns over the last few months and may actually be approaching a breakup point.

Nippon Steel Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Steel Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Nippon Steel is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alta Equipment and Nippon Steel

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

The idea behind Alta Equipment Group and Nippon Steel Corp 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.