Correlation Between Alcoa Corp and IShares GNMA

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

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

Diversification Opportunities for Alcoa Corp and IShares GNMA

0.08

Correlation Coefficient

Alcoa Corp  IShares GNMA

Significant diversification

The 3 months correlation between Alcoa and IShares is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and iShares GNMA Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares GNMA Bond 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 IShares GNMA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares GNMA Bond has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and IShares GNMA go up and down completely randomly.

Pair Corralation between Alcoa Corp and IShares GNMA

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the IShares GNMA. In addition to that, Alcoa Corp is 7.28 times more volatile than iShares GNMA Bond. It trades about -0.19 of its total potential returns per unit of risk. iShares GNMA Bond is currently generating about 0.07 per unit of volatility. If you would invest  4,330  in iShares GNMA Bond on December 1, 2024 and sell it today you would earn a total of  60.00  from holding iShares GNMA Bond or generate 1.39% return on investment over 90 days.

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

Alcoa Corp  vs.  iShares GNMA Bond

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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

iShares GNMA Bond

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares GNMA Bond are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, IShares GNMA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alcoa Corp and IShares GNMA

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

The idea behind Alcoa Corp and iShares GNMA Bond 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.