Correlation Between Alcoa Corp and Large Cap

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

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

Diversification Opportunities for Alcoa Corp and Large Cap

0.88

Correlation Coefficient

Alcoa Corp  Large Cap

Very poor diversification

The 3 months correlation between Alcoa and Large is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Large Cap E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap E 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 Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap E has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Large Cap go up and down completely randomly.

Pair Corralation between Alcoa Corp and Large Cap

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 4.19 times more return on investment than Large Cap. However, Alcoa Corp is 4.19 times more volatile than Large Cap E. It trades about 0.23 of its potential returns per unit of risk. Large Cap E is currently generating about 0.16 per unit of risk. If you would invest  3,015  in Alcoa Corp on September 3, 2024 and sell it today you would earn a total of  1,628  from holding Alcoa Corp or generate 54.0% return on investment over 90 days.

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

Alcoa Corp  vs.  Large Cap E

Alcoa Corp

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Large Cap E

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap E are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Large Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Alcoa Corp and Large Cap

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

The idea behind Alcoa Corp and Large Cap E 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.