Correlation Between Alcoa Corp and Invesco DB

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

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

Diversification Opportunities for Alcoa Corp and Invesco DB

-0.71

Correlation Coefficient

Alcoa Corp  Invesco DB

Pay attention - limited upside

The 3 months correlation between Alcoa and Invesco is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Invesco DB Dollar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DB Dollar 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 Invesco DB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DB Dollar has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Invesco DB go up and down completely randomly.

Pair Corralation between Alcoa Corp and Invesco DB

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the Invesco DB. In addition to that, Alcoa Corp is 5.6 times more volatile than Invesco DB Dollar. It trades about -0.06 of its total potential returns per unit of risk. Invesco DB Dollar is currently generating about 0.13 per unit of volatility. If you would invest  1,678  in Invesco DB Dollar on December 27, 2024 and sell it today you would earn a total of  69.00  from holding Invesco DB Dollar or generate 4.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Alcoa Corp  vs.  Invesco DB Dollar

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.

Invesco DB Dollar

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DB Dollar are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Invesco DB is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Alcoa Corp and Invesco DB

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

The idea behind Alcoa Corp and Invesco DB Dollar 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.