Correlation Between TERADATA and Kaiser Aluminum

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

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

Diversification Opportunities for TERADATA and Kaiser Aluminum

0.12

Correlation Coefficient

TERADATA  Kaiser Aluminum

Average diversification

The 3 months correlation between TERADATA and Kaiser is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding TERADATA and Kaiser Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaiser Aluminum and TERADATA 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 TERADATA are associated (or correlated) with Kaiser Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaiser Aluminum has no effect on the direction of TERADATA i.e., TERADATA and Kaiser Aluminum go up and down completely randomly.

Pair Corralation between TERADATA and Kaiser Aluminum

Assuming the 90 days trading horizon TERADATA is expected to generate 0.45 times more return on investment than Kaiser Aluminum. However, TERADATA is 2.23 times less risky than Kaiser Aluminum. It trades about 0.12 of its potential returns per unit of risk. Kaiser Aluminum is currently generating about 0.03 per unit of risk. If you would invest  2,760  in TERADATA on October 5, 2024 and sell it today you would earn a total of  260.00  from holding TERADATA or generate 9.42% return on investment over 90 days.

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

TERADATA  vs.  Kaiser Aluminum

TERADATA

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days TERADATA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively uncertain basic indicators, TERADATA may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Kaiser Aluminum

Risk-Adjusted Performance

0 of 100

Insignificant

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

Pair Trading with TERADATA and Kaiser Aluminum

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

The idea behind TERADATA and Kaiser Aluminum 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.