Correlation Between Alcoa Corp and Petrus Resources

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

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

Diversification Opportunities for Alcoa Corp and Petrus Resources

0.71

Correlation Coefficient

Alcoa Corp  Petrus Resources

Poor diversification

The 3 months correlation between Alcoa and Petrus is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Petrus Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petrus Resources 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 Petrus Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petrus Resources has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Petrus Resources go up and down completely randomly.

Pair Corralation between Alcoa Corp and Petrus Resources

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 2.04 times more return on investment than Petrus Resources. However, Alcoa Corp is 2.04 times more volatile than Petrus Resources. It trades about 0.23 of its potential returns per unit of risk. Petrus Resources is currently generating about 0.12 per unit of risk. If you would invest  3,020  in Alcoa Corp on September 5, 2024 and sell it today you would earn a total of  1,567  from holding Alcoa Corp or generate 51.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.88%
Values	Daily Returns

Alcoa Corp  vs.  Petrus Resources

Alcoa Corp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 17 (%) 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.

Petrus Resources

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Petrus Resources are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Petrus Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Alcoa Corp and Petrus Resources

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

The idea behind Alcoa Corp and Petrus Resources 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.