Correlation Between Alcoa Corp and IShares MSCI

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

Diversification Opportunities for Alcoa Corp and IShares MSCI

0.45

Correlation Coefficient

Alcoa Corp  IShares MSCI

Very weak diversification

The 3 months correlation between Alcoa and IShares is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and iShares MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI USA 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 MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI USA has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and IShares MSCI go up and down completely randomly.

Pair Corralation between Alcoa Corp and IShares MSCI

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 3.72 times more return on investment than IShares MSCI. However, Alcoa Corp is 3.72 times more volatile than iShares MSCI USA. It trades about 0.05 of its potential returns per unit of risk. iShares MSCI USA is currently generating about 0.08 per unit of risk. If you would invest  3,592  in Alcoa Corp on September 25, 2024 and sell it today you would earn a total of  266.00  from holding Alcoa Corp or generate 7.41% return on investment over 90 days.

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

Alcoa Corp  vs.  iShares MSCI USA

Alcoa Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Alcoa Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares MSCI USA

Risk-Adjusted Performance

6 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI USA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, IShares MSCI is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Alcoa Corp and IShares MSCI

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

The idea behind Alcoa Corp and iShares MSCI USA 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.

Check out your portfolio center.

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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.