Correlation Between United States and Howmet Aerospace

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

By analyzing existing cross correlation between United States Steel and Howmet Aerospace, you can compare the effects of market volatilities on United States and Howmet Aerospace 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 United States with a short position of Howmet Aerospace. Check out your portfolio center. Please also check ongoing floating volatility patterns of United States and Howmet Aerospace.

Diversification Opportunities for United States and Howmet Aerospace

0.18

Correlation Coefficient

United States  Howmet Aerospace

Average diversification

The 3 months correlation between United and Howmet is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Howmet Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Howmet Aerospace and United States 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 United States Steel are associated (or correlated) with Howmet Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Howmet Aerospace has no effect on the direction of United States i.e., United States and Howmet Aerospace go up and down completely randomly.

Pair Corralation between United States and Howmet Aerospace

Assuming the 90 days trading horizon United States is expected to generate 2.14 times less return on investment than Howmet Aerospace. In addition to that, United States is 1.36 times more volatile than Howmet Aerospace. It trades about 0.04 of its total potential returns per unit of risk. Howmet Aerospace is currently generating about 0.12 per unit of volatility. If you would invest  19,656  in Howmet Aerospace on October 10, 2024 and sell it today you would earn a total of  50,656  from holding Howmet Aerospace or generate 257.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	92.67%
Values	Daily Returns

United States Steel  vs.  Howmet Aerospace

United States Steel

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in United States Steel are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, United States may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Howmet Aerospace

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Howmet Aerospace are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Howmet Aerospace sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United States and Howmet Aerospace

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

The idea behind United States Steel and Howmet Aerospace 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.