Correlation Between Alta Equipment and First Ship

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

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

Diversification Opportunities for Alta Equipment and First Ship

0.0

Correlation Coefficient

Alta Equipment  First Ship

Pay attention - limited upside

The 3 months correlation between Alta and First is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Alta Equipment Group and First Ship Lease in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Ship Lease and Alta Equipment 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 Alta Equipment Group are associated (or correlated) with First Ship. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Ship Lease has no effect on the direction of Alta Equipment i.e., Alta Equipment and First Ship go up and down completely randomly.

Pair Corralation between Alta Equipment and First Ship

Assuming the 90 days trading horizon Alta Equipment is expected to generate 2.09 times less return on investment than First Ship. But when comparing it to its historical volatility, Alta Equipment Group is 1.55 times less risky than First Ship. It trades about 0.03 of its potential returns per unit of risk. First Ship Lease is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2.50  in First Ship Lease on September 25, 2024 and sell it today you would earn a total of  1.50  from holding First Ship Lease or generate 60.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.79%
Values	Daily Returns

Alta Equipment Group  vs.  First Ship Lease

Alta Equipment Group

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alta Equipment Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Alta Equipment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Ship Lease

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Ship Lease has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, First Ship is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Alta Equipment and First Ship

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

The idea behind Alta Equipment Group and First Ship Lease 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.