Correlation Between Alcoa Corp and Ultrashort Dow

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

By analyzing existing cross correlation between Alcoa Corp and Ultrashort Dow 30, you can compare the effects of market volatilities on Alcoa Corp and Ultrashort Dow 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 Ultrashort Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa Corp and Ultrashort Dow.

Diversification Opportunities for Alcoa Corp and Ultrashort Dow

-0.54

Correlation Coefficient

Alcoa Corp  Ultrashort Dow

Excellent diversification

The 3 months correlation between Alcoa and Ultrashort is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Ultrashort Dow 30 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultrashort Dow 30 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 Ultrashort Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultrashort Dow 30 has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Ultrashort Dow go up and down completely randomly.

Pair Corralation between Alcoa Corp and Ultrashort Dow

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 2.26 times more return on investment than Ultrashort Dow. However, Alcoa Corp is 2.26 times more volatile than Ultrashort Dow 30. It trades about 0.04 of its potential returns per unit of risk. Ultrashort Dow 30 is currently generating about -0.07 per unit of risk. If you would invest  2,822  in Alcoa Corp on October 4, 2024 and sell it today you would earn a total of  977.00  from holding Alcoa Corp or generate 34.62% return on investment over 90 days.

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

Alcoa Corp  vs.  Ultrashort Dow 30

Alcoa Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ultrashort Dow 30

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ultrashort Dow 30 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Ultrashort Dow is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alcoa Corp and Ultrashort Dow

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

The idea behind Alcoa Corp and Ultrashort Dow 30 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..