Correlation Between Alcoa Corp and International Equity

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

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

Diversification Opportunities for Alcoa Corp and International Equity

0.48

Correlation Coefficient

Alcoa Corp  International Equity

Very weak diversification

The 3 months correlation between Alcoa and International is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and International Equity Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity 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 International Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Equity has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and International Equity go up and down completely randomly.

Pair Corralation between Alcoa Corp and International Equity

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 3.39 times more return on investment than International Equity. However, Alcoa Corp is 3.39 times more volatile than International Equity Index. It trades about -0.02 of its potential returns per unit of risk. International Equity Index is currently generating about -0.11 per unit of risk. If you would invest  4,142  in Alcoa Corp on October 21, 2024 and sell it today you would lose (189.00) from holding Alcoa Corp or give up 4.56% of portfolio value over 90 days.

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

Alcoa Corp  vs.  International Equity Index

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 current stock price disturbance, may contribute to short-term losses for the investors.

International Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Equity Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, International Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alcoa Corp and International Equity

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

The idea behind Alcoa Corp and International Equity Index 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.