Correlation Between Altern Energy and Matco Foods

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

By analyzing existing cross correlation between Altern Energy and Matco Foods, you can compare the effects of market volatilities on Altern Energy and Matco Foods 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 Altern Energy with a short position of Matco Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Altern Energy and Matco Foods.

Diversification Opportunities for Altern Energy and Matco Foods

0.94

Correlation Coefficient

Altern Energy  Matco Foods

Almost no diversification

The 3 months correlation between Altern and Matco is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Altern Energy and Matco Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matco Foods and Altern Energy 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 Altern Energy are associated (or correlated) with Matco Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Matco Foods has no effect on the direction of Altern Energy i.e., Altern Energy and Matco Foods go up and down completely randomly.

Pair Corralation between Altern Energy and Matco Foods

Assuming the 90 days trading horizon Altern Energy is expected to generate 0.81 times more return on investment than Matco Foods. However, Altern Energy is 1.24 times less risky than Matco Foods. It trades about 0.1 of its potential returns per unit of risk. Matco Foods is currently generating about 0.06 per unit of risk. If you would invest  1,433  in Altern Energy on October 9, 2024 and sell it today you would earn a total of  958.00  from holding Altern Energy or generate 66.85% return on investment over 90 days.

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

Altern Energy  vs.  Matco Foods

Altern Energy

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Altern Energy are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Altern Energy sustained solid returns over the last few months and may actually be approaching a breakup point.

Matco Foods

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Matco Foods are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Matco Foods reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Altern Energy and Matco Foods

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

The idea behind Altern Energy and Matco Foods 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.