Correlation Between Kaiser Aluminum and Alcoa Corp

Can any of the company-specific risk be diversified away by investing in both Kaiser Aluminum 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 Kaiser Aluminum and Alcoa 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 Alcoa Corp, you can compare the effects of market volatilities on Kaiser Aluminum 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 Kaiser Aluminum with a short position of Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kaiser Aluminum and Alcoa Corp.

Diversification Opportunities for Kaiser Aluminum and Alcoa Corp

0.78

Correlation Coefficient

Kaiser Aluminum  Alcoa Corp

Poor diversification

The 3 months correlation between Kaiser and Alcoa is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Kaiser Aluminum and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa 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 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 Kaiser Aluminum i.e., Kaiser Aluminum and Alcoa Corp go up and down completely randomly.

Pair Corralation between Kaiser Aluminum and Alcoa Corp

Assuming the 90 days trading horizon Kaiser Aluminum is expected to generate 0.77 times more return on investment than Alcoa Corp. However, Kaiser Aluminum is 1.3 times less risky than Alcoa Corp. It trades about -0.05 of its potential returns per unit of risk. Alcoa Corp is currently generating about -0.07 per unit of risk. If you would invest  6,674  in Kaiser Aluminum on December 26, 2024 and sell it today you would lose (474.00) from holding Kaiser Aluminum or give up 7.1% of portfolio value over 90 days.

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

Kaiser Aluminum  vs.  Alcoa Corp

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. Despite nearly stable basic indicators, Kaiser Aluminum is not utilizing all of its potentials. The newest 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 latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Kaiser Aluminum and Alcoa Corp

The main advantage of trading using opposite Kaiser Aluminum and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kaiser Aluminum 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 Kaiser Aluminum 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.