Correlation Between Alcoa Corp and GILEAD

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

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

Diversification Opportunities for Alcoa Corp and GILEAD

-0.57

Correlation Coefficient

Alcoa Corp  GILEAD

Excellent diversification

The 3 months correlation between Alcoa and GILEAD is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and GILEAD SCIENCES INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GILEAD SCIENCES INC 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 GILEAD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GILEAD SCIENCES INC has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and GILEAD go up and down completely randomly.

Pair Corralation between Alcoa Corp and GILEAD

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the GILEAD. In addition to that, Alcoa Corp is 4.06 times more volatile than GILEAD SCIENCES INC. It trades about -0.09 of its total potential returns per unit of risk. GILEAD SCIENCES INC is currently generating about -0.03 per unit of volatility. If you would invest  9,009  in GILEAD SCIENCES INC on December 30, 2024 and sell it today you would lose (132.00) from holding GILEAD SCIENCES INC or give up 1.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Alcoa Corp  vs.  GILEAD SCIENCES INC

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.

GILEAD SCIENCES INC

Risk-Adjusted Performance

Very Weak

Over the last 90 days GILEAD SCIENCES INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, GILEAD is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alcoa Corp and GILEAD

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

The idea behind Alcoa Corp and GILEAD SCIENCES INC 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.