Correlation Between Alcoa and Farm Pride
Can any of the company-specific risk be diversified away by investing in both Alcoa and Farm Pride 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 and Farm Pride into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alcoa Inc and Farm Pride Foods, you can compare the effects of market volatilities on Alcoa and Farm Pride 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 with a short position of Farm Pride. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa and Farm Pride.
Diversification Opportunities for Alcoa and Farm Pride
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Alcoa and Farm is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Inc and Farm Pride Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farm Pride Foods and Alcoa 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 Inc are associated (or correlated) with Farm Pride. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farm Pride Foods has no effect on the direction of Alcoa i.e., Alcoa and Farm Pride go up and down completely randomly.
Pair Corralation between Alcoa and Farm Pride
Assuming the 90 days trading horizon Alcoa Inc is expected to generate 0.58 times more return on investment than Farm Pride. However, Alcoa Inc is 1.72 times less risky than Farm Pride. It trades about 0.21 of its potential returns per unit of risk. Farm Pride Foods is currently generating about 0.03 per unit of risk. If you would invest 4,475 in Alcoa Inc on September 12, 2024 and sell it today you would earn a total of 1,946 from holding Alcoa Inc or generate 43.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 98.46% |
| Values | Daily Returns |
Alcoa Inc vs. Farm Pride Foods
Performance |
| Timeline |
| Alcoa Inc |
| Farm Pride Foods |
Alcoa and Farm Pride Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alcoa and Farm Pride
The main advantage of trading using opposite Alcoa and Farm Pride positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa position performs unexpectedly, Farm Pride 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 Farm Pride will offset losses from the drop in Farm Pride's long position.| Alcoa vs. Ramsay Health Care | Alcoa vs. Beston Global Food | Alcoa vs. Fisher Paykel Healthcare | Alcoa vs. Cleanaway Waste Management |
| Farm Pride vs. Medibank Private | Farm Pride vs. Kkr Credit Income | Farm Pride vs. Aurelia Metals | Farm Pride vs. Centuria Industrial Reit |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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