Correlation Between Davis Commodities and Alta Equipment

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

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

Diversification Opportunities for Davis Commodities and Alta Equipment

0.43

Correlation Coefficient

Davis Commodities  Alta Equipment

Very weak diversification

The 3 months correlation between Davis and Alta is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Davis Commodities Limited and Alta Equipment Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alta Equipment Group and Davis Commodities 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 Davis Commodities Limited are associated (or correlated) with Alta Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alta Equipment Group has no effect on the direction of Davis Commodities i.e., Davis Commodities and Alta Equipment go up and down completely randomly.

Pair Corralation between Davis Commodities and Alta Equipment

Given the investment horizon of 90 days Davis Commodities Limited is expected to generate 0.8 times more return on investment than Alta Equipment. However, Davis Commodities Limited is 1.26 times less risky than Alta Equipment. It trades about -0.05 of its potential returns per unit of risk. Alta Equipment Group is currently generating about -0.1 per unit of risk. If you would invest  110.00  in Davis Commodities Limited on December 27, 2024 and sell it today you would lose (14.00) from holding Davis Commodities Limited or give up 12.73% of portfolio value over 90 days.

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

Davis Commodities Limited  vs.  Alta Equipment Group

Davis Commodities

Risk-Adjusted Performance

Very Weak

Over the last 90 days Davis Commodities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Alta Equipment Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alta Equipment Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Davis Commodities and Alta Equipment

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

The idea behind Davis Commodities Limited and Alta Equipment 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.

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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 Valuation module to check real value of public entities based on technical and fundamental data.