Correlation Between Pan American and Alcoa Corp

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

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

Diversification Opportunities for Pan American and Alcoa Corp

0.34

Correlation Coefficient

Pan American  Alcoa Corp

Weak diversification

The 3 months correlation between Pan and Alcoa is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Pan American Silver and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and Pan American 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 Pan American Silver 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 Pan American i.e., Pan American and Alcoa Corp go up and down completely randomly.

Pair Corralation between Pan American and Alcoa Corp

Given the investment horizon of 90 days Pan American Silver is expected to generate 1.13 times more return on investment than Alcoa Corp. However, Pan American is 1.13 times more volatile than Alcoa Corp. It trades about -0.13 of its potential returns per unit of risk. Alcoa Corp is currently generating about -0.48 per unit of risk. If you would invest  2,276  in Pan American Silver on October 6, 2024 and sell it today you would lose (192.00) from holding Pan American Silver or give up 8.44% of portfolio value over 90 days.

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

Pan American Silver  vs.  Alcoa Corp

Pan American Silver

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pan American Silver has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Pan American is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private 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 latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Pan American and Alcoa Corp

The main advantage of trading using opposite Pan American and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pan American 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 Pan American Silver 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..