Correlation Between HP and Alcoa Corp

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

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

Diversification Opportunities for HP and Alcoa Corp

0.79

Correlation Coefficient

HP  Alcoa Corp

Poor diversification

The 3 months correlation between HP and Alcoa is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and HP 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 HP Inc 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 HP i.e., HP and Alcoa Corp go up and down completely randomly.

Pair Corralation between HP and Alcoa Corp

Considering the 90-day investment horizon HP Inc is expected to generate 0.58 times more return on investment than Alcoa Corp. However, HP Inc is 1.73 times less risky than Alcoa Corp. It trades about 0.03 of its potential returns per unit of risk. Alcoa Corp is currently generating about 0.0 per unit of risk. If you would invest  2,787  in HP Inc on October 23, 2024 and sell it today you would earn a total of  459.50  from holding HP Inc or generate 16.49% return on investment over 90 days.

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

HP Inc  vs.  Alcoa Corp

HP Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HP Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest fragile performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Alcoa Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alcoa Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Alcoa Corp is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with HP and Alcoa Corp

The main advantage of trading using opposite HP and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP 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 HP Inc 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.