Correlation Between Alcoa Corp and Alumina Limited
Can any of the company-specific risk be diversified away by investing in both Alcoa Corp and Alumina Limited 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 Alcoa Corp and Alumina Limited into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alcoa Corp and Alumina Limited PK, you can compare the effects of market volatilities on Alcoa Corp and Alumina Limited 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 Alcoa Corp with a short position of Alumina Limited. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa Corp and Alumina Limited.
Diversification Opportunities for Alcoa Corp and Alumina Limited
-0.26 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Alcoa and Alumina is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Alumina Limited PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alumina Limited PK and Alcoa Corp 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 Alcoa Corp are associated (or correlated) with Alumina Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alumina Limited PK has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Alumina Limited go up and down completely randomly.
Pair Corralation between Alcoa Corp and Alumina Limited
Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 1.65 times less return on investment than Alumina Limited. In addition to that, Alcoa Corp is 1.02 times more volatile than Alumina Limited PK. It trades about 0.08 of its total potential returns per unit of risk. Alumina Limited PK is currently generating about 0.14 per unit of volatility. If you would invest 190.00 in Alumina Limited PK on August 26, 2024 and sell it today you would earn a total of 179.00 from holding Alumina Limited PK or generate 94.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 67.87% |
| Values | Daily Returns |
Alcoa Corp vs. Alumina Limited PK
Performance |
| Timeline |
| Alcoa Corp |
| Alumina Limited PK |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Alcoa Corp and Alumina Limited Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alcoa Corp and Alumina Limited
The main advantage of trading using opposite Alcoa Corp and Alumina Limited positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa Corp position performs unexpectedly, Alumina Limited 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 Alumina Limited will offset losses from the drop in Alumina Limited's long position.The idea behind Alcoa Corp and Alumina Limited PK 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.| Alumina Limited vs. Anhui Conch Cement | Alumina Limited vs. Asahi Kaisei Corp | Alumina Limited vs. Covestro ADR |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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