Correlation Between Alcoa Corp and Innovator

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

By analyzing existing cross correlation between Alcoa Corp and Innovator SP 500, you can compare the effects of market volatilities on Alcoa Corp and Innovator 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 Innovator. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa Corp and Innovator.

Diversification Opportunities for Alcoa Corp and Innovator

0.79

Correlation Coefficient

Alcoa Corp  Innovator

Poor diversification

The 3 months correlation between Alcoa and Innovator is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Innovator SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator SP 500 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 Innovator. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator SP 500 has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Innovator go up and down completely randomly.

Pair Corralation between Alcoa Corp and Innovator

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 2.0 times less return on investment than Innovator. In addition to that, Alcoa Corp is 7.18 times more volatile than Innovator SP 500. It trades about 0.01 of its total potential returns per unit of risk. Innovator SP 500 is currently generating about 0.12 per unit of volatility. If you would invest  2,980  in Innovator SP 500 on September 16, 2024 and sell it today you would earn a total of  907.00  from holding Innovator SP 500 or generate 30.44% return on investment over 90 days.

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

Alcoa Corp  vs.  Innovator SP 500

Alcoa Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 6 (%) 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.

Innovator SP 500

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator SP 500 are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Innovator 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 Innovator

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

The idea behind Alcoa Corp and Innovator SP 500 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.