Correlation Between United States and Alcoa Corp

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

Diversification Opportunities for United States and Alcoa Corp

0.7

Correlation Coefficient

United States  Alcoa Corp

Poor diversification

The 3 months correlation between United and Alcoa is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp 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 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 United States i.e., United States and Alcoa Corp go up and down completely randomly.

Pair Corralation between United States and Alcoa Corp

Taking into account the 90-day investment horizon United States is expected to generate 3.29 times less return on investment than Alcoa Corp. In addition to that, United States is 1.08 times more volatile than Alcoa Corp. It trades about 0.05 of its total potential returns per unit of risk. Alcoa Corp is currently generating about 0.18 per unit of volatility. If you would invest  4,096  in Alcoa Corp on August 30, 2024 and sell it today you would earn a total of  492.00  from holding Alcoa Corp or generate 12.01% return on investment over 90 days.

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

United States Steel  vs.  Alcoa Corp

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. In spite of fairly unsteady basic indicators, United States may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Alcoa Corp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United States and Alcoa Corp

The main advantage of trading using opposite United States and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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 United States Steel 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.