Correlation Between Alcoa Corp and SPDR SP

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

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

Diversification Opportunities for Alcoa Corp and SPDR SP

0.9

Correlation Coefficient

Alcoa Corp  SPDR SP

Almost no diversification

The 3 months correlation between Alcoa and SPDR is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and SPDR SP Kensho in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Kensho 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Kensho has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and SPDR SP go up and down completely randomly.

Pair Corralation between Alcoa Corp and SPDR SP

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 2.55 times more return on investment than SPDR SP. However, Alcoa Corp is 2.55 times more volatile than SPDR SP Kensho. It trades about -0.03 of its potential returns per unit of risk. SPDR SP Kensho is currently generating about -0.1 per unit of risk. If you would invest  3,650  in Alcoa Corp on December 19, 2024 and sell it today you would lose (253.00) from holding Alcoa Corp or give up 6.93% of portfolio value over 90 days.

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

Alcoa Corp  vs.  SPDR SP Kensho

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 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.

SPDR SP Kensho

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP Kensho has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Etf's primary indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with Alcoa Corp and SPDR SP

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

The idea behind Alcoa Corp and SPDR SP Kensho 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.