Correlation Between NewMarket and Alto Ingredients

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

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

Diversification Opportunities for NewMarket and Alto Ingredients

-0.35

Correlation Coefficient

NewMarket  Alto Ingredients

Very good diversification

The 3 months correlation between NewMarket and Alto is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding NewMarket and Alto Ingredients in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alto Ingredients and NewMarket 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 NewMarket are associated (or correlated) with Alto Ingredients. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alto Ingredients has no effect on the direction of NewMarket i.e., NewMarket and Alto Ingredients go up and down completely randomly.

Pair Corralation between NewMarket and Alto Ingredients

Considering the 90-day investment horizon NewMarket is expected to generate 0.38 times more return on investment than Alto Ingredients. However, NewMarket is 2.64 times less risky than Alto Ingredients. It trades about 0.04 of its potential returns per unit of risk. Alto Ingredients is currently generating about -0.04 per unit of risk. If you would invest  52,090  in NewMarket on December 20, 2024 and sell it today you would earn a total of  1,675  from holding NewMarket or generate 3.22% return on investment over 90 days.

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

NewMarket  vs.  Alto Ingredients

NewMarket

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NewMarket are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, NewMarket is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Alto Ingredients

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alto Ingredients has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with NewMarket and Alto Ingredients

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

The idea behind NewMarket and Alto Ingredients 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.