Correlation Between Forestar and Alamo

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

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

Diversification Opportunities for Forestar and Alamo

0.64

Correlation Coefficient

Forestar  Alamo

Poor diversification

The 3 months correlation between Forestar and Alamo is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Forestar Group and Alamo Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alamo Group and Forestar 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 Forestar Group are associated (or correlated) with Alamo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alamo Group has no effect on the direction of Forestar i.e., Forestar and Alamo go up and down completely randomly.

Pair Corralation between Forestar and Alamo

Considering the 90-day investment horizon Forestar Group is expected to under-perform the Alamo. In addition to that, Forestar is 1.88 times more volatile than Alamo Group. It trades about -0.15 of its total potential returns per unit of risk. Alamo Group is currently generating about -0.09 per unit of volatility. If you would invest  19,962  in Alamo Group on November 29, 2024 and sell it today you would lose (1,308) from holding Alamo Group or give up 6.55% of portfolio value over 90 days.

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

Forestar Group  vs.  Alamo Group

Forestar Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Forestar Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with conflicting performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in March 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Alamo Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alamo Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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 Forestar and Alamo

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

The idea behind Forestar Group and Alamo 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.