Correlation Between Alcoa Corp and First Trust

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

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

Diversification Opportunities for Alcoa Corp and First Trust

0.53

Correlation Coefficient

Alcoa Corp  First Trust

Very weak diversification

The 3 months correlation between Alcoa and First is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and First Trust NASDAQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust NASDAQ 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust NASDAQ has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and First Trust go up and down completely randomly.

Pair Corralation between Alcoa Corp and First Trust

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the First Trust. In addition to that, Alcoa Corp is 2.08 times more volatile than First Trust NASDAQ. It trades about -0.06 of its total potential returns per unit of risk. First Trust NASDAQ is currently generating about -0.06 per unit of volatility. If you would invest  5,663  in First Trust NASDAQ on December 26, 2024 and sell it today you would lose (313.00) from holding First Trust NASDAQ or give up 5.53% 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.  First Trust NASDAQ

Alcoa Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alcoa Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

First Trust NASDAQ

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust NASDAQ has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, First Trust is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alcoa Corp and First Trust

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

The idea behind Alcoa Corp and First Trust NASDAQ 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.