Correlation Between Alcoa Corp and IShares Morningstar | AA vs. JKL

Correlation Between Alcoa Corp and IShares Morningstar

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Can any of the company-specific risk be diversified away by investing in both Alcoa Corp and IShares Morningstar 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 IShares Morningstar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alcoa Corp and iShares Morningstar Small Cap, you can compare the effects of market volatilities on Alcoa Corp and IShares Morningstar 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 IShares Morningstar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa Corp and IShares Morningstar.

Diversification Opportunities for Alcoa Corp and IShares Morningstar

AlcoaISharesDiversified AwayAlcoaISharesDiversified Away100%
0.66
  Correlation Coefficient

Poor diversification

The 3 months correlation between Alcoa and IShares is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and iShares Morningstar Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Morningstar 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 IShares Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Morningstar has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and IShares Morningstar go up and down completely randomly.

Pair Corralation between Alcoa Corp and IShares Morningstar

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the IShares Morningstar. In addition to that, Alcoa Corp is 2.08 times more volatile than iShares Morningstar Small Cap. It trades about -0.33 of its total potential returns per unit of risk. iShares Morningstar Small Cap is currently generating about -0.17 per unit of volatility. If you would invest  6,597  in iShares Morningstar Small Cap on September 21, 2024 and sell it today you would lose (304.00) from holding iShares Morningstar Small Cap or give up 4.61% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Alcoa Corp  vs.  iShares Morningstar Small Cap

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec 0102030
JavaScript chart by amCharts 3.21.15AA JKL
       Timeline  
Alcoa Corp 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec36384042444648
iShares Morningstar 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in iShares Morningstar Small Cap are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, IShares Morningstar is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec626364656667686970

Alcoa Corp and IShares Morningstar Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-9.41-7.05-4.68-2.320.02.344.757.179.5912.01 0.050.100.150.200.25
JavaScript chart by amCharts 3.21.15AA JKL
       Returns  

Pair Trading with Alcoa Corp and IShares Morningstar

The main advantage of trading using opposite Alcoa Corp and IShares Morningstar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa Corp position performs unexpectedly, IShares Morningstar 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 IShares Morningstar will offset losses from the drop in IShares Morningstar's long position.
The idea behind Alcoa Corp and iShares Morningstar Small Cap 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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