Correlation Between Alcoa Corp and Itochu Corp

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

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

Diversification Opportunities for Alcoa Corp and Itochu Corp

-0.56

Correlation Coefficient

Alcoa Corp  Itochu Corp

Excellent diversification

The 3 months correlation between Alcoa and Itochu is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Itochu Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Itochu Corp ADR 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 Itochu Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Itochu Corp ADR has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Itochu Corp go up and down completely randomly.

Pair Corralation between Alcoa Corp and Itochu Corp

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 1.63 times more return on investment than Itochu Corp. However, Alcoa Corp is 1.63 times more volatile than Itochu Corp ADR. It trades about 0.03 of its potential returns per unit of risk. Itochu Corp ADR is currently generating about 0.02 per unit of risk. If you would invest  4,376  in Alcoa Corp on September 1, 2024 and sell it today you would earn a total of  267.00  from holding Alcoa Corp or generate 6.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Alcoa Corp  vs.  Itochu Corp ADR

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 unfluctuating basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Itochu Corp ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Itochu Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Itochu Corp 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 Itochu Corp

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

The idea behind Alcoa Corp and Itochu Corp ADR 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.