Correlation Between Hydrofarm Holdings and Alamo

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

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

Diversification Opportunities for Hydrofarm Holdings and Alamo

-0.31

Correlation Coefficient

Hydrofarm Holdings  Alamo

Very good diversification

The 3 months correlation between Hydrofarm and Alamo is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Hydrofarm Holdings Group and Alamo Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alamo Group and Hydrofarm Holdings 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 Hydrofarm Holdings 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 Hydrofarm Holdings i.e., Hydrofarm Holdings and Alamo go up and down completely randomly.

Pair Corralation between Hydrofarm Holdings and Alamo

Given the investment horizon of 90 days Hydrofarm Holdings Group is expected to generate 2.46 times more return on investment than Alamo. However, Hydrofarm Holdings is 2.46 times more volatile than Alamo Group. It trades about 0.22 of its potential returns per unit of risk. Alamo Group is currently generating about 0.06 per unit of risk. If you would invest  44.00  in Hydrofarm Holdings Group on August 30, 2024 and sell it today you would earn a total of  39.00  from holding Hydrofarm Holdings Group or generate 88.64% return on investment over 90 days.

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

Hydrofarm Holdings Group  vs.  Alamo Group

Hydrofarm Holdings

Risk-Adjusted Performance

17 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hydrofarm Holdings Group are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady technical and fundamental indicators, Hydrofarm Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

Alamo Group

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alamo Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating essential indicators, Alamo may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Hydrofarm Holdings and Alamo

The main advantage of trading using opposite Hydrofarm Holdings and Alamo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hydrofarm Holdings 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 Hydrofarm Holdings 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.