Correlation Between Alta Equipment and Verde Clean

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

Diversification Opportunities for Alta Equipment and Verde Clean

-0.04

Correlation Coefficient

Alta Equipment  Verde Clean

Good diversification

The 3 months correlation between Alta and Verde is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Alta Equipment Group and Verde Clean Fuels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verde Clean Fuels 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 Verde Clean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verde Clean Fuels has no effect on the direction of Alta Equipment i.e., Alta Equipment and Verde Clean go up and down completely randomly.

Pair Corralation between Alta Equipment and Verde Clean

Given the investment horizon of 90 days Alta Equipment Group is expected to under-perform the Verde Clean. But the stock apears to be less risky and, when comparing its historical volatility, Alta Equipment Group is 26.47 times less risky than Verde Clean. The stock trades about -0.03 of its potential returns per unit of risk. The Verde Clean Fuels is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  17.00  in Verde Clean Fuels on October 7, 2024 and sell it today you would earn a total of  4.00  from holding Verde Clean Fuels or generate 23.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	76.65%
Values	Daily Returns

Alta Equipment Group  vs.  Verde Clean Fuels

Alta Equipment Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alta Equipment Group are ranked lower than 4 (%) 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.

Verde Clean Fuels

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Verde Clean Fuels are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Verde Clean showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alta Equipment and Verde Clean

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

The idea behind Alta Equipment Group and Verde Clean Fuels 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.