Correlation Between Alcoa Corp and WisdomTree MidCap

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

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

Diversification Opportunities for Alcoa Corp and WisdomTree MidCap

0.71

Correlation Coefficient

Alcoa Corp  WisdomTree MidCap

Poor diversification

The 3 months correlation between Alcoa and WisdomTree is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and WisdomTree MidCap Earnings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree MidCap 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 WisdomTree MidCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree MidCap has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and WisdomTree MidCap go up and down completely randomly.

Pair Corralation between Alcoa Corp and WisdomTree MidCap

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the WisdomTree MidCap. In addition to that, Alcoa Corp is 2.96 times more volatile than WisdomTree MidCap Earnings. It trades about -0.03 of its total potential returns per unit of risk. WisdomTree MidCap Earnings is currently generating about -0.05 per unit of volatility. If you would invest  6,182  in WisdomTree MidCap Earnings on December 19, 2024 and sell it today you would lose (203.00) from holding WisdomTree MidCap Earnings or give up 3.28% 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.  WisdomTree MidCap Earnings

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 somewhat strong basic indicators, Alcoa Corp is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

WisdomTree MidCap

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree MidCap Earnings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, WisdomTree MidCap is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Alcoa Corp and WisdomTree MidCap

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

The idea behind Alcoa Corp and WisdomTree MidCap Earnings 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.