Correlation Between Alumina Limited and Kaiser Aluminum

Can any of the company-specific risk be diversified away by investing in both Alumina Limited and Kaiser Aluminum 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 Alumina Limited and Kaiser Aluminum into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Alumina Limited and Kaiser Aluminum

-0.35

Correlation Coefficient

Alumina Limited  Kaiser Aluminum

Very good diversification

The 3 months correlation between Alumina and Kaiser is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Alumina Limited PK and Kaiser Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaiser Aluminum and Alumina Limited 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 Alumina Limited PK are associated (or correlated) with Kaiser Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaiser Aluminum has no effect on the direction of Alumina Limited i.e., Alumina Limited and Kaiser Aluminum go up and down completely randomly.

Pair Corralation between Alumina Limited and Kaiser Aluminum

If you would invest  6,866  in Kaiser Aluminum on September 5, 2024 and sell it today you would earn a total of  1,430  from holding Kaiser Aluminum or generate 20.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.56%
Values	Daily Returns

Alumina Limited PK  vs.  Kaiser Aluminum

Alumina Limited PK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alumina Limited PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Alumina Limited is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Kaiser Aluminum

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kaiser Aluminum are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak essential indicators, Kaiser Aluminum unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alumina Limited and Kaiser Aluminum

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

The idea behind Alumina Limited PK and Kaiser Aluminum 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 .