Correlation Between Alcoa Corp and China Medicine
Can any of the company-specific risk be diversified away by investing in both Alcoa Corp and China Medicine 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 China Medicine into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alcoa Corp and China Medicine, you can compare the effects of market volatilities on Alcoa Corp and China Medicine 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 China Medicine. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa Corp and China Medicine.
Diversification Opportunities for Alcoa Corp and China Medicine
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Alcoa and China is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and China Medicine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Medicine 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 China Medicine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Medicine has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and China Medicine go up and down completely randomly.
Pair Corralation between Alcoa Corp and China Medicine
Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 2.0 times less return on investment than China Medicine. But when comparing it to its historical volatility, Alcoa Corp is 2.93 times less risky than China Medicine. It trades about 0.09 of its potential returns per unit of risk. China Medicine is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 0.01 in China Medicine on September 4, 2024 and sell it today you would earn a total of 0.01 from holding China Medicine or generate 100.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Alcoa Corp vs. China Medicine
Performance |
| Timeline |
| Alcoa Corp |
| China Medicine |
Alcoa Corp and China Medicine Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alcoa Corp and China Medicine
The main advantage of trading using opposite Alcoa Corp and China Medicine positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa Corp position performs unexpectedly, China Medicine 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 China Medicine will offset losses from the drop in China Medicine's long position.| Alcoa Corp vs. Constellium Nv | Alcoa Corp vs. Century Aluminum | Alcoa Corp vs. China Hongqiao Group | Alcoa Corp vs. Kaiser Aluminum |
| China Medicine vs. Cardinal Health | China Medicine vs. Henry Schein | China Medicine vs. Owens Minor | China Medicine vs. Patterson Companies |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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