Correlation Between Alcoa Corp and RCABS

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

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

Diversification Opportunities for Alcoa Corp and RCABS

0.62

Correlation Coefficient

Alcoa Corp  RCABS

Poor diversification

The 3 months correlation between Alcoa and RCABS is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and RCABS Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCABS Inc 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 RCABS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RCABS Inc has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and RCABS go up and down completely randomly.

Pair Corralation between Alcoa Corp and RCABS

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the RCABS. But the stock apears to be less risky and, when comparing its historical volatility, Alcoa Corp is 4.5 times less risky than RCABS. The stock trades about -0.06 of its potential returns per unit of risk. The RCABS Inc is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  0.08  in RCABS Inc on December 27, 2024 and sell it today you would lose (0.03) from holding RCABS Inc or give up 37.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Alcoa Corp  vs.  RCABS Inc

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.

RCABS Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days RCABS Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, RCABS is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alcoa Corp and RCABS

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

The idea behind Alcoa Corp and RCABS Inc 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.