Correlation Between Alcoa Corp and AES Corp

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

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

Diversification Opportunities for Alcoa Corp and AES Corp

0.0

Correlation Coefficient

Alcoa Corp  AES Corp

Pay attention - limited upside

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

Pair Corralation between Alcoa Corp and AES Corp

If you would invest (100.00) in AES Corp Unit on December 26, 2024 and sell it today you would earn a total of  100.00  from holding AES Corp Unit or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Alcoa Corp  vs.  AES Corp Unit

Alcoa Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alcoa Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

AES Corp Unit

Risk-Adjusted Performance

Very Weak

Over the last 90 days AES Corp Unit has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, AES Corp is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Alcoa Corp and AES Corp

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

The idea behind Alcoa Corp and AES Corp Unit 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.