Correlation Between Alcoa Corp and 594918BM5

Can any of the company-specific risk be diversified away by investing in both Alcoa Corp and 594918BM5 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 594918BM5 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alcoa Corp and MICROSOFT P 475, you can compare the effects of market volatilities on Alcoa Corp and 594918BM5 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 594918BM5. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa Corp and 594918BM5.

Diversification Opportunities for Alcoa Corp and 594918BM5

0.69

Correlation Coefficient

Alcoa Corp  594918BM5

Poor diversification

The 3 months correlation between Alcoa and 594918BM5 is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and MICROSOFT P 475 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MICROSOFT P 475 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 594918BM5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MICROSOFT P 475 has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and 594918BM5 go up and down completely randomly.

Pair Corralation between Alcoa Corp and 594918BM5

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the 594918BM5. In addition to that, Alcoa Corp is 2.94 times more volatile than MICROSOFT P 475. It trades about -0.17 of its total potential returns per unit of risk. MICROSOFT P 475 is currently generating about -0.08 per unit of volatility. If you would invest  9,883  in MICROSOFT P 475 on November 27, 2024 and sell it today you would lose (406.00) from holding MICROSOFT P 475 or give up 4.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.31%
Values	Daily Returns

Alcoa Corp  vs.  MICROSOFT P 475

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 March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

MICROSOFT P 475

Risk-Adjusted Performance

Very Weak

Over the last 90 days MICROSOFT P 475 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 594918BM5 is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alcoa Corp and 594918BM5

The main advantage of trading using opposite Alcoa Corp and 594918BM5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa Corp position performs unexpectedly, 594918BM5 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 594918BM5 will offset losses from the drop in 594918BM5's long position.

The idea behind Alcoa Corp and MICROSOFT P 475 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.