Correlation Between Alcoa Corp and VanEck Semiconductor

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

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

Diversification Opportunities for Alcoa Corp and VanEck Semiconductor

0.82

Correlation Coefficient

Alcoa Corp  VanEck Semiconductor

Very poor diversification

The 3 months correlation between Alcoa and VanEck is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and VanEck Semiconductor ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Semiconductor ETF 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 VanEck Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Semiconductor ETF has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and VanEck Semiconductor go up and down completely randomly.

Pair Corralation between Alcoa Corp and VanEck Semiconductor

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the VanEck Semiconductor. In addition to that, Alcoa Corp is 1.16 times more volatile than VanEck Semiconductor ETF. It trades about -0.08 of its total potential returns per unit of risk. VanEck Semiconductor ETF is currently generating about -0.06 per unit of volatility. If you would invest  24,840  in VanEck Semiconductor ETF on December 27, 2024 and sell it today you would lose (2,639) from holding VanEck Semiconductor ETF or give up 10.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

Alcoa Corp  vs.  VanEck Semiconductor ETF

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 unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

VanEck Semiconductor ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days VanEck Semiconductor ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's primary indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the Etf traders.

Pair Trading with Alcoa Corp and VanEck Semiconductor

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

The idea behind Alcoa Corp and VanEck Semiconductor ETF 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.