Correlation Between Alcoa Corp and Ufp Industries

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

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

Diversification Opportunities for Alcoa Corp and Ufp Industries

0.64

Correlation Coefficient

Alcoa Corp  Ufp Industries

Poor diversification

The 3 months correlation between Alcoa and Ufp is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Ufp Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ufp Industries 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 Ufp Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ufp Industries has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Ufp Industries go up and down completely randomly.

Pair Corralation between Alcoa Corp and Ufp Industries

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the Ufp Industries. In addition to that, Alcoa Corp is 1.86 times more volatile than Ufp Industries. It trades about -0.07 of its total potential returns per unit of risk. Ufp Industries is currently generating about -0.02 per unit of volatility. If you would invest  11,359  in Ufp Industries on December 26, 2024 and sell it today you would lose (334.00) from holding Ufp Industries or give up 2.94% of portfolio value over 90 days.

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

Alcoa Corp  vs.  Ufp Industries

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.

Ufp Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ufp Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Ufp Industries is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Alcoa Corp and Ufp Industries

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

The idea behind Alcoa Corp and Ufp Industries 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.