Correlation Between Alcoa Corp and THC Therapeutics

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

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

Diversification Opportunities for Alcoa Corp and THC Therapeutics

0.52

Correlation Coefficient

Alcoa Corp  THC Therapeutics

Very weak diversification

The 3 months correlation between Alcoa and THC is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and THC Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on THC Therapeutics 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 THC Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of THC Therapeutics has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and THC Therapeutics go up and down completely randomly.

Pair Corralation between Alcoa Corp and THC Therapeutics

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the THC Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Alcoa Corp is 10.28 times less risky than THC Therapeutics. The stock trades about -0.07 of its potential returns per unit of risk. The THC Therapeutics is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  0.07  in THC Therapeutics on December 26, 2024 and sell it today you would lose (0.04) from holding THC Therapeutics or give up 57.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.83%
Values	Daily Returns

Alcoa Corp  vs.  THC Therapeutics

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.

THC Therapeutics

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in THC Therapeutics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal fundamental indicators, THC Therapeutics unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alcoa Corp and THC Therapeutics

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

The idea behind Alcoa Corp and THC Therapeutics 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.