Correlation Between Alcoa Corp and Energy

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

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

Diversification Opportunities for Alcoa Corp and Energy

0.66

Correlation Coefficient

Alcoa Corp  Energy

Poor diversification

The 3 months correlation between Alcoa and Energy is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Energy and Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy and Water 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 Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy and Water has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Energy go up and down completely randomly.

Pair Corralation between Alcoa Corp and Energy

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the Energy. But the stock apears to be less risky and, when comparing its historical volatility, Alcoa Corp is 5.32 times less risky than Energy. The stock trades about -0.06 of its potential returns per unit of risk. The Energy and Water is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  0.38  in Energy and Water on December 27, 2024 and sell it today you would lose (0.18) from holding Energy and Water or give up 47.37% of portfolio value over 90 days.

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

Alcoa Corp  vs.  Energy and Water

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.

Energy and Water

Risk-Adjusted Performance

Very Weak

Over the last 90 days Energy and Water has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Energy is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Alcoa Corp and Energy

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

The idea behind Alcoa Corp and Energy and Water 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.