Correlation Between Aluminum and Vulcan Materials

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Can any of the company-specific risk be diversified away by investing in both Aluminum and Vulcan Materials 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 Aluminum and Vulcan Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aluminum of and Vulcan Materials, you can compare the effects of market volatilities on Aluminum and Vulcan Materials 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 Aluminum with a short position of Vulcan Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aluminum and Vulcan Materials.

Diversification Opportunities for Aluminum and Vulcan Materials

-0.41
  Correlation Coefficient

Very good diversification

The 3 months correlation between Aluminum and Vulcan is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Aluminum of and Vulcan Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Materials and Aluminum 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 Aluminum of are associated (or correlated) with Vulcan Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Materials has no effect on the direction of Aluminum i.e., Aluminum and Vulcan Materials go up and down completely randomly.

Pair Corralation between Aluminum and Vulcan Materials

Assuming the 90 days horizon Aluminum of is expected to under-perform the Vulcan Materials. In addition to that, Aluminum is 3.0 times more volatile than Vulcan Materials. It trades about -0.21 of its total potential returns per unit of risk. Vulcan Materials is currently generating about -0.34 per unit of volatility. If you would invest  27,631  in Vulcan Materials on October 11, 2024 and sell it today you would lose (2,103) from holding Vulcan Materials or give up 7.61% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Aluminum of  vs.  Vulcan Materials

 Performance 
       Timeline  
Aluminum 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Aluminum of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.
Vulcan Materials 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Materials are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Vulcan Materials is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Aluminum and Vulcan Materials Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Aluminum and Vulcan Materials

The main advantage of trading using opposite Aluminum and Vulcan Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aluminum position performs unexpectedly, Vulcan Materials 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 Vulcan Materials will offset losses from the drop in Vulcan Materials' long position.
The idea behind Aluminum of and Vulcan Materials 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .

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