Correlation Between Alcoa Corp and Collegium Pharmaceutical

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

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

Diversification Opportunities for Alcoa Corp and Collegium Pharmaceutical

-0.17

Correlation Coefficient

Alcoa Corp  Collegium Pharmaceutical

Good diversification

The 3 months correlation between Alcoa and Collegium is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Collegium Pharmaceutical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Collegium Pharmaceutical 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 Collegium Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Collegium Pharmaceutical has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Collegium Pharmaceutical go up and down completely randomly.

Pair Corralation between Alcoa Corp and Collegium Pharmaceutical

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the Collegium Pharmaceutical. But the stock apears to be less risky and, when comparing its historical volatility, Alcoa Corp is 1.03 times less risky than Collegium Pharmaceutical. The stock trades about -0.17 of its potential returns per unit of risk. The Collegium Pharmaceutical is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  3,071  in Collegium Pharmaceutical on November 27, 2024 and sell it today you would lose (189.00) from holding Collegium Pharmaceutical or give up 6.15% of portfolio value over 90 days.

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

Alcoa Corp  vs.  Collegium Pharmaceutical

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 unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Collegium Pharmaceutical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Collegium Pharmaceutical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Collegium Pharmaceutical is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Alcoa Corp and Collegium Pharmaceutical

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

The idea behind Alcoa Corp and Collegium Pharmaceutical 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.