Correlation Between Commercial Metals and Century Aluminum

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

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

Diversification Opportunities for Commercial Metals and Century Aluminum

0.38

Correlation Coefficient

Commercial Metals  Century Aluminum

Weak diversification

The 3 months correlation between Commercial and Century is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Commercial Metals and Century Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Aluminum and Commercial Metals 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 Commercial Metals are associated (or correlated) with Century Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Aluminum has no effect on the direction of Commercial Metals i.e., Commercial Metals and Century Aluminum go up and down completely randomly.

Pair Corralation between Commercial Metals and Century Aluminum

Considering the 90-day investment horizon Commercial Metals is expected to under-perform the Century Aluminum. But the stock apears to be less risky and, when comparing its historical volatility, Commercial Metals is 2.13 times less risky than Century Aluminum. The stock trades about -0.03 of its potential returns per unit of risk. The Century Aluminum is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,823  in Century Aluminum on December 29, 2024 and sell it today you would earn a total of  33.00  from holding Century Aluminum or generate 1.81% return on investment over 90 days.

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

Commercial Metals  vs.  Century Aluminum

Commercial Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Commercial Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Commercial Metals is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Century Aluminum

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Century Aluminum are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Century Aluminum may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Commercial Metals and Century Aluminum

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

The idea behind Commercial Metals and Century 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.