Correlation Between Aluminumof China and Xcel Energy

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

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

Diversification Opportunities for Aluminumof China and Xcel Energy

-0.44

Correlation Coefficient

Aluminumof China  Xcel Energy

Very good diversification

The 3 months correlation between Aluminumof and Xcel is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Aluminum of and Xcel Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xcel Energy 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 Xcel Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xcel Energy has no effect on the direction of Aluminumof China i.e., Aluminumof China and Xcel Energy go up and down completely randomly.

Pair Corralation between Aluminumof China and Xcel Energy

Assuming the 90 days horizon Aluminum of is expected to under-perform the Xcel Energy. In addition to that, Aluminumof China is 2.53 times more volatile than Xcel Energy. It trades about -0.21 of its total potential returns per unit of risk. Xcel Energy is currently generating about -0.16 per unit of volatility. If you would invest  6,506  in Xcel Energy on October 10, 2024 and sell it today you would lose (197.00) from holding Xcel Energy or give up 3.03% of portfolio value over 90 days.

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

Aluminum of  vs.  Xcel Energy

Aluminumof China

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aluminum of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Xcel Energy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xcel Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Xcel Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aluminumof China and Xcel Energy

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

The idea behind Aluminum of and Xcel Energy 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.