Correlation Between Alcoa Corp and Lsb Industries

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

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

Diversification Opportunities for Alcoa Corp and Lsb Industries

0.69

Correlation Coefficient

Alcoa Corp  Lsb Industries

Poor diversification

The 3 months correlation between Alcoa and Lsb is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Lsb Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lsb Industries 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 Lsb Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lsb Industries has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Lsb Industries go up and down completely randomly.

Pair Corralation between Alcoa Corp and Lsb Industries

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the Lsb Industries. But the stock apears to be less risky and, when comparing its historical volatility, Alcoa Corp is 1.31 times less risky than Lsb Industries. The stock trades about -0.06 of its potential returns per unit of risk. The Lsb Industries is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  758.00  in Lsb Industries on December 27, 2024 and sell it today you would lose (75.00) from holding Lsb Industries or give up 9.89% of portfolio value over 90 days.

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

Alcoa Corp  vs.  Lsb Industries

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 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.

Lsb Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lsb Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Alcoa Corp and Lsb Industries

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

The idea behind Alcoa Corp and Lsb Industries 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.