Correlation Between Alcoa Corp and Innovator Equity

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

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

Diversification Opportunities for Alcoa Corp and Innovator Equity

-0.31

Correlation Coefficient

Alcoa Corp  Innovator Equity

Very good diversification

The 3 months correlation between Alcoa and Innovator is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Innovator Equity Defined in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator Equity Defined 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 Innovator Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator Equity Defined has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Innovator Equity go up and down completely randomly.

Pair Corralation between Alcoa Corp and Innovator Equity

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 24.75 times more return on investment than Innovator Equity. However, Alcoa Corp is 24.75 times more volatile than Innovator Equity Defined. It trades about 0.16 of its potential returns per unit of risk. Innovator Equity Defined is currently generating about 0.29 per unit of risk. If you would invest  3,127  in Alcoa Corp on September 12, 2024 and sell it today you would earn a total of  982.00  from holding Alcoa Corp or generate 31.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	44.44%
Values	Daily Returns

Alcoa Corp  vs.  Innovator Equity Defined

Alcoa Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Innovator Equity Defined

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator Equity Defined are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Innovator Equity is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Alcoa Corp and Innovator Equity

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

The idea behind Alcoa Corp and Innovator Equity Defined 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.