Correlation Between Aluminumof China and Alcoa Corp

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

By analyzing existing cross correlation between Aluminum of and Alcoa Corp, you can compare the effects of market volatilities on Aluminumof China and Alcoa Corp 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 Aluminumof China with a short position of Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aluminumof China and Alcoa Corp.

Diversification Opportunities for Aluminumof China and Alcoa Corp

0.09

Correlation Coefficient

Aluminumof China  Alcoa Corp

Significant diversification

The 3 months correlation between Aluminumof and Alcoa is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Aluminum of and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and Aluminumof China 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 Alcoa Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alcoa Corp has no effect on the direction of Aluminumof China i.e., Aluminumof China and Alcoa Corp go up and down completely randomly.

Pair Corralation between Aluminumof China and Alcoa Corp

Assuming the 90 days horizon Aluminum of is expected to generate 1.07 times more return on investment than Alcoa Corp. However, Aluminumof China is 1.07 times more volatile than Alcoa Corp. It trades about 0.06 of its potential returns per unit of risk. Alcoa Corp is currently generating about 0.01 per unit of risk. If you would invest  26.00  in Aluminum of on September 23, 2024 and sell it today you would earn a total of  27.00  from holding Aluminum of or generate 103.85% return on investment over 90 days.

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

Aluminum of  vs.  Alcoa Corp

Aluminumof China

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aluminum of are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Aluminumof China reported solid returns over the last few months and may actually be approaching a breakup point.

Alcoa Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Alcoa Corp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aluminumof China and Alcoa Corp

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

The idea behind Aluminum of and Alcoa Corp 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.