Correlation Between Alcoa Corp and IShares Morningstar

Can any of the company-specific risk be diversified away by investing in both Alcoa Corp and IShares Morningstar 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 Morningstar 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 Morningstar Small Cap, you can compare the effects of market volatilities on Alcoa Corp and IShares Morningstar 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 Morningstar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa Corp and IShares Morningstar.

Diversification Opportunities for Alcoa Corp and IShares Morningstar

0.66

Correlation Coefficient

Alcoa Corp  IShares Morningstar

Poor diversification

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

Pair Corralation between Alcoa Corp and IShares Morningstar

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the IShares Morningstar. In addition to that, Alcoa Corp is 2.64 times more volatile than iShares Morningstar Small Cap. It trades about -0.01 of its total potential returns per unit of risk. iShares Morningstar Small Cap is currently generating about 0.04 per unit of volatility. If you would invest  4,728  in iShares Morningstar Small Cap on October 11, 2024 and sell it today you would earn a total of  1,170  from holding iShares Morningstar Small Cap or generate 24.75% return on investment over 90 days.

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

Alcoa Corp  vs.  iShares Morningstar Small Cap

Alcoa Corp

Risk-Adjusted Performance

0 of 100

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.

iShares Morningstar

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Morningstar Small Cap are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, IShares Morningstar 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 Morningstar

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

The idea behind Alcoa Corp and iShares Morningstar Small Cap 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.