Correlation Between Alcoa Corp and Small Capitalization

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

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

Diversification Opportunities for Alcoa Corp and Small Capitalization

0.94

Correlation Coefficient

Alcoa Corp  Small Capitalization

Almost no diversification

The 3 months correlation between Alcoa and Small is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Small Capitalization Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Capitalization 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 Small Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Capitalization has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Small Capitalization go up and down completely randomly.

Pair Corralation between Alcoa Corp and Small Capitalization

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the Small Capitalization. In addition to that, Alcoa Corp is 1.38 times more volatile than Small Capitalization Portfolio. It trades about -0.19 of its total potential returns per unit of risk. Small Capitalization Portfolio is currently generating about -0.23 per unit of volatility. If you would invest  726.00  in Small Capitalization Portfolio on December 1, 2024 and sell it today you would lose (173.00) from holding Small Capitalization Portfolio or give up 23.83% 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.  Small Capitalization Portfolio

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.

Small Capitalization

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Capitalization Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly 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 fund investors.

Pair Trading with Alcoa Corp and Small Capitalization

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

The idea behind Alcoa Corp and Small Capitalization Portfolio 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.