Correlation Between Kaiser Aluminum and Nucor Corp

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

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

Diversification Opportunities for Kaiser Aluminum and Nucor Corp

0.59

Correlation Coefficient

Kaiser Aluminum  Nucor Corp

Very weak diversification

The 3 months correlation between Kaiser and Nucor is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Kaiser Aluminum and Nucor Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nucor Corp and Kaiser Aluminum 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 Kaiser Aluminum are associated (or correlated) with Nucor Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nucor Corp has no effect on the direction of Kaiser Aluminum i.e., Kaiser Aluminum and Nucor Corp go up and down completely randomly.

Pair Corralation between Kaiser Aluminum and Nucor Corp

Given the investment horizon of 90 days Kaiser Aluminum is expected to generate 0.92 times more return on investment than Nucor Corp. However, Kaiser Aluminum is 1.09 times less risky than Nucor Corp. It trades about 0.13 of its potential returns per unit of risk. Nucor Corp is currently generating about 0.07 per unit of risk. If you would invest  6,846  in Kaiser Aluminum on September 4, 2024 and sell it today you would earn a total of  1,476  from holding Kaiser Aluminum or generate 21.56% return on investment over 90 days.

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

Kaiser Aluminum  vs.  Nucor Corp

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.

Nucor Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nucor Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Nucor Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Kaiser Aluminum and Nucor Corp

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

The idea behind Kaiser Aluminum and Nucor 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.