Correlation Between Alcoa Corp and Banco Do

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

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

Diversification Opportunities for Alcoa Corp and Banco Do

-0.58

Correlation Coefficient

Alcoa Corp  Banco Do

Excellent diversification

The 3 months correlation between Alcoa and Banco is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Banco Do Brasil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Do Brasil 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 Banco Do. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Do Brasil has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Banco Do go up and down completely randomly.

Pair Corralation between Alcoa Corp and Banco Do

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the Banco Do. In addition to that, Alcoa Corp is 1.31 times more volatile than Banco Do Brasil. It trades about -0.06 of its total potential returns per unit of risk. Banco Do Brasil is currently generating about 0.18 per unit of volatility. If you would invest  394.00  in Banco Do Brasil on December 27, 2024 and sell it today you would earn a total of  95.00  from holding Banco Do Brasil or generate 24.11% return on investment over 90 days.

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

Alcoa Corp  vs.  Banco Do Brasil

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.

Banco Do Brasil

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Do Brasil are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Banco Do showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alcoa Corp and Banco Do

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

The idea behind Alcoa Corp and Banco Do Brasil 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.