Correlation Between Alcoa Corp and EQUINOR

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

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

Diversification Opportunities for Alcoa Corp and EQUINOR

-0.65

Correlation Coefficient

Alcoa Corp  EQUINOR

Excellent diversification

The 3 months correlation between Alcoa and EQUINOR is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and EQUINOR ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EQUINOR ASA 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 EQUINOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EQUINOR ASA has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and EQUINOR go up and down completely randomly.

Pair Corralation between Alcoa Corp and EQUINOR

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 2.45 times more return on investment than EQUINOR. However, Alcoa Corp is 2.45 times more volatile than EQUINOR ASA. It trades about 0.24 of its potential returns per unit of risk. EQUINOR ASA is currently generating about -0.09 per unit of risk. If you would invest  3,015  in Alcoa Corp on September 1, 2024 and sell it today you would earn a total of  1,628  from holding Alcoa Corp or generate 54.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	80.95%
Values	Daily Returns

Alcoa Corp  vs.  EQUINOR ASA

Alcoa Corp

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

EQUINOR ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EQUINOR ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for EQUINOR ASA investors.

Pair Trading with Alcoa Corp and EQUINOR

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

The idea behind Alcoa Corp and EQUINOR ASA 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.