Correlation Between China Hongqiao and Alcoa Corp

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

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

Diversification Opportunities for China Hongqiao and Alcoa Corp

0.31

Correlation Coefficient

China Hongqiao  Alcoa Corp

Weak diversification

The 3 months correlation between China and Alcoa is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding China Hongqiao Group and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and China Hongqiao 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 China Hongqiao Group 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 China Hongqiao i.e., China Hongqiao and Alcoa Corp go up and down completely randomly.

Pair Corralation between China Hongqiao and Alcoa Corp

Assuming the 90 days horizon China Hongqiao Group is expected to under-perform the Alcoa Corp. But the pink sheet apears to be less risky and, when comparing its historical volatility, China Hongqiao Group is 3.5 times less risky than Alcoa Corp. The pink sheet trades about -0.22 of its potential returns per unit of risk. The Alcoa Corp is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  3,415  in Alcoa Corp on November 29, 2024 and sell it today you would lose (72.00) from holding Alcoa Corp or give up 2.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

China Hongqiao Group  vs.  Alcoa Corp

China Hongqiao Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Hongqiao Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, China Hongqiao is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Alcoa Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alcoa Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with China Hongqiao and Alcoa Corp

The main advantage of trading using opposite China Hongqiao and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Hongqiao 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 China Hongqiao Group 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.