Correlation Between Alcoa Corp and Petroleo Brasileiro

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

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

Diversification Opportunities for Alcoa Corp and Petroleo Brasileiro

0.06

Correlation Coefficient

Alcoa Corp  Petroleo Brasileiro

Significant diversification

The 3 months correlation between Alcoa and Petroleo is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Petroleo Brasileiro Petrobras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petroleo Brasileiro 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 Petroleo Brasileiro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petroleo Brasileiro has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Petroleo Brasileiro go up and down completely randomly.

Pair Corralation between Alcoa Corp and Petroleo Brasileiro

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 1.04 times less return on investment than Petroleo Brasileiro. In addition to that, Alcoa Corp is 1.63 times more volatile than Petroleo Brasileiro Petrobras. It trades about 0.02 of its total potential returns per unit of risk. Petroleo Brasileiro Petrobras is currently generating about 0.04 per unit of volatility. If you would invest  1,045  in Petroleo Brasileiro Petrobras on October 4, 2024 and sell it today you would earn a total of  269.50  from holding Petroleo Brasileiro Petrobras or generate 25.79% return on investment over 90 days.

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

Alcoa Corp  vs.  Petroleo Brasileiro Petrobras

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.

Petroleo Brasileiro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petroleo Brasileiro Petrobras has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's fundamental drivers remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Alcoa Corp and Petroleo Brasileiro

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

The idea behind Alcoa Corp and Petroleo Brasileiro Petrobras 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.