Correlation Between Constellium and Kaiser Aluminum

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

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

Diversification Opportunities for Constellium and Kaiser Aluminum

0.86

Correlation Coefficient

Constellium  Kaiser Aluminum

Very poor diversification

The 3 months correlation between Constellium and Kaiser is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Constellium Nv and Kaiser Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaiser Aluminum and Constellium 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 Constellium Nv 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 Constellium i.e., Constellium and Kaiser Aluminum go up and down completely randomly.

Pair Corralation between Constellium and Kaiser Aluminum

Given the investment horizon of 90 days Constellium Nv is expected to generate 1.54 times more return on investment than Kaiser Aluminum. However, Constellium is 1.54 times more volatile than Kaiser Aluminum. It trades about -0.03 of its potential returns per unit of risk. Kaiser Aluminum is currently generating about -0.1 per unit of risk. If you would invest  1,226  in Constellium Nv on November 29, 2024 and sell it today you would lose (87.50) from holding Constellium Nv or give up 7.14% of portfolio value over 90 days.

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

Constellium Nv  vs.  Kaiser Aluminum

Constellium Nv

Risk-Adjusted Performance

Very Weak

Over the last 90 days Constellium Nv has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Constellium is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Kaiser Aluminum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kaiser Aluminum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's essential indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Constellium and Kaiser Aluminum

The main advantage of trading using opposite Constellium and Kaiser Aluminum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Constellium 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 Constellium Nv 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.