Correlation Between Alcoa Corp and Western Asset

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

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

Diversification Opportunities for Alcoa Corp and Western Asset

-0.65

Correlation Coefficient

Alcoa Corp  Western Asset

Excellent diversification

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

Pair Corralation between Alcoa Corp and Western Asset

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 10.49 times more return on investment than Western Asset. However, Alcoa Corp is 10.49 times more volatile than Western Asset Inflation. It trades about 0.23 of its potential returns per unit of risk. Western Asset Inflation is currently generating about -0.04 per unit of risk. If you would invest  3,015  in Alcoa Corp on August 31, 2024 and sell it today you would earn a total of  1,573  from holding Alcoa Corp or generate 52.17% return on investment over 90 days.

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

Alcoa Corp  vs.  Western Asset Inflation

Alcoa Corp

Risk-Adjusted Performance

18 of 100

Good

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 sluggish basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Western Asset Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Inflation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Western Asset 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 Western Asset

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

The idea behind Alcoa Corp and Western Asset Inflation 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.