Correlation Between Alcoa Corp and Disney

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

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

Diversification Opportunities for Alcoa Corp and Disney

0.27

Correlation Coefficient

Alcoa Corp  Disney

Modest diversification

The 3 months correlation between Alcoa and Disney is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney 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 Disney. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walt Disney has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Disney go up and down completely randomly.

Pair Corralation between Alcoa Corp and Disney

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 2.0 times more return on investment than Disney. However, Alcoa Corp is 2.0 times more volatile than Walt Disney. It trades about 0.07 of its potential returns per unit of risk. Walt Disney is currently generating about 0.05 per unit of risk. If you would invest  2,464  in Alcoa Corp on October 5, 2024 and sell it today you would earn a total of  1,335  from holding Alcoa Corp or generate 54.18% return on investment over 90 days.

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

Alcoa Corp  vs.  Walt Disney

Alcoa Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Walt Disney

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alcoa Corp and Disney

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

The idea behind Alcoa Corp and Walt Disney 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.