Correlation Between Alcoa Corp and PRAXAIR

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Can any of the company-specific risk be diversified away by investing in both Alcoa Corp and PRAXAIR 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 PRAXAIR into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alcoa Corp and PRAXAIR INC 355, you can compare the effects of market volatilities on Alcoa Corp and PRAXAIR 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 PRAXAIR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa Corp and PRAXAIR.

Diversification Opportunities for Alcoa Corp and PRAXAIR

0.19
  Correlation Coefficient

Average diversification

The 3 months correlation between Alcoa and PRAXAIR is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and PRAXAIR INC 355 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PRAXAIR INC 355 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 PRAXAIR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PRAXAIR INC 355 has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and PRAXAIR go up and down completely randomly.

Pair Corralation between Alcoa Corp and PRAXAIR

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 284.42 times less return on investment than PRAXAIR. But when comparing it to its historical volatility, Alcoa Corp is 39.7 times less risky than PRAXAIR. It trades about 0.02 of its potential returns per unit of risk. PRAXAIR INC 355 is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  8,350  in PRAXAIR INC 355 on August 25, 2024 and sell it today you would earn a total of  24.00  from holding PRAXAIR INC 355 or generate 0.29% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy38.23%
ValuesDaily Returns

Alcoa Corp  vs.  PRAXAIR INC 355

 Performance 
       Timeline  
Alcoa Corp 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 11 (%) 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.
PRAXAIR INC 355 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days PRAXAIR INC 355 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, PRAXAIR is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Alcoa Corp and PRAXAIR Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alcoa Corp and PRAXAIR

The main advantage of trading using opposite Alcoa Corp and PRAXAIR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa Corp position performs unexpectedly, PRAXAIR 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 PRAXAIR will offset losses from the drop in PRAXAIR's long position.
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The idea behind Alcoa Corp and PRAXAIR INC 355 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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