Correlation Between Kodiak Gas and Alta Equipment

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

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

Diversification Opportunities for Kodiak Gas and Alta Equipment

0.71

Correlation Coefficient

Kodiak Gas  Alta Equipment

Poor diversification

The 3 months correlation between Kodiak and Alta is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Kodiak Gas Services, 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 Kodiak Gas 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 Kodiak Gas Services, 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 Kodiak Gas i.e., Kodiak Gas and Alta Equipment go up and down completely randomly.

Pair Corralation between Kodiak Gas and Alta Equipment

Considering the 90-day investment horizon Kodiak Gas Services, is expected to generate 0.57 times more return on investment than Alta Equipment. However, Kodiak Gas Services, is 1.75 times less risky than Alta Equipment. It trades about 0.16 of its potential returns per unit of risk. Alta Equipment Group is currently generating about -0.01 per unit of risk. If you would invest  2,595  in Kodiak Gas Services, on October 4, 2024 and sell it today you would earn a total of  1,528  from holding Kodiak Gas Services, or generate 58.9% return on investment over 90 days.

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

Kodiak Gas Services,  vs.  Alta Equipment Group

Kodiak Gas Services,

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kodiak Gas Services, are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Kodiak Gas unveiled solid returns over the last few months and may actually be approaching a breakup point.

Alta Equipment Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alta Equipment Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Alta Equipment may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Kodiak Gas and Alta Equipment

The main advantage of trading using opposite Kodiak Gas and Alta Equipment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kodiak Gas 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 Kodiak Gas Services, 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.