Correlation Between Alcoa Corp and United States
Can any of the company-specific risk be diversified away by investing in both Alcoa Corp and United States 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 United States into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alcoa Corp and United States Steel, you can compare the effects of market volatilities on Alcoa Corp and United States 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 United States. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa Corp and United States.
Diversification Opportunities for Alcoa Corp and United States
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Alcoa and United is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and United States Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United States Steel 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 United States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United States Steel has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and United States go up and down completely randomly.
Pair Corralation between Alcoa Corp and United States
Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 2.2 times less return on investment than United States. In addition to that, Alcoa Corp is 1.02 times more volatile than United States Steel. It trades about 0.02 of its total potential returns per unit of risk. United States Steel is currently generating about 0.04 per unit of volatility. If you would invest 2,632 in United States Steel on August 28, 2024 and sell it today you would earn a total of 1,331 from holding United States Steel or generate 50.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Alcoa Corp vs. United States Steel
Performance |
| Timeline |
| Alcoa Corp |
| United States Steel |
Alcoa Corp and United States Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alcoa Corp and United States
The main advantage of trading using opposite Alcoa Corp and United States positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa Corp position performs unexpectedly, United States 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 United States will offset losses from the drop in United States' long position.The idea behind Alcoa Corp and United States Steel 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.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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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