Correlation Between Alcoa Corp and Pacer Lunt

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

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

Diversification Opportunities for Alcoa Corp and Pacer Lunt

0.6

Correlation Coefficient

Alcoa Corp  Pacer Lunt

Poor diversification

The 3 months correlation between Alcoa and Pacer is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Pacer Lunt MidCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Lunt MidCap 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 Pacer Lunt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Lunt MidCap has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Pacer Lunt go up and down completely randomly.

Pair Corralation between Alcoa Corp and Pacer Lunt

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 5.44 times less return on investment than Pacer Lunt. In addition to that, Alcoa Corp is 2.92 times more volatile than Pacer Lunt MidCap. It trades about 0.01 of its total potential returns per unit of risk. Pacer Lunt MidCap is currently generating about 0.08 per unit of volatility. If you would invest  3,091  in Pacer Lunt MidCap on October 9, 2024 and sell it today you would earn a total of  1,664  from holding Pacer Lunt MidCap or generate 53.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Alcoa Corp  vs.  Pacer Lunt MidCap

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 somewhat strong basic indicators, Alcoa Corp is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pacer Lunt MidCap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pacer Lunt MidCap are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Pacer Lunt is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Alcoa Corp and Pacer Lunt

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

The idea behind Alcoa Corp and Pacer Lunt MidCap 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.