Correlation Between Alcoa Corp and Davis Select

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

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

Diversification Opportunities for Alcoa Corp and Davis Select

0.52

Correlation Coefficient

Alcoa Corp  Davis Select

Very weak diversification

The 3 months correlation between Alcoa and Davis is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Davis Select Worldwide in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Select Worldwide 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 Davis Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Select Worldwide has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Davis Select go up and down completely randomly.

Pair Corralation between Alcoa Corp and Davis Select

If you would invest  4,278  in Alcoa Corp on September 18, 2024 and sell it today you would lose (366.00) from holding Alcoa Corp or give up 8.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	0.2%
Values	Daily Returns

Alcoa Corp  vs.  Davis Select Worldwide

Alcoa Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Davis Select Worldwide

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Davis Select Worldwide has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather weak essential indicators, Davis Select may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Alcoa Corp and Davis Select

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

The idea behind Alcoa Corp and Davis Select Worldwide 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 Transaction History module to view history of all your transactions and understand their impact on performance.