Correlation Between Alto Ingredients and REX American

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

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

Diversification Opportunities for Alto Ingredients and REX American

0.28

Correlation Coefficient

Alto Ingredients  REX American

Modest diversification

The 3 months correlation between Alto and REX is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Alto Ingredients and REX American Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REX American Resources and Alto Ingredients 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 Alto Ingredients are associated (or correlated) with REX American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REX American Resources has no effect on the direction of Alto Ingredients i.e., Alto Ingredients and REX American go up and down completely randomly.

Pair Corralation between Alto Ingredients and REX American

Given the investment horizon of 90 days Alto Ingredients is expected to generate 2.83 times more return on investment than REX American. However, Alto Ingredients is 2.83 times more volatile than REX American Resources. It trades about 0.04 of its potential returns per unit of risk. REX American Resources is currently generating about -0.03 per unit of risk. If you would invest  138.00  in Alto Ingredients on August 30, 2024 and sell it today you would earn a total of  3.00  from holding Alto Ingredients or generate 2.17% return on investment over 90 days.

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

Alto Ingredients  vs.  REX American Resources

Alto Ingredients

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alto Ingredients are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Alto Ingredients displayed solid returns over the last few months and may actually be approaching a breakup point.

REX American Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days REX American Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, REX American is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alto Ingredients and REX American

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

The idea behind Alto Ingredients and REX American Resources 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.