Correlation Between Small Cap and Century Aluminum
Can any of the company-specific risk be diversified away by investing in both Small Cap and Century Aluminum 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 Small Cap and Century Aluminum into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Core and Century Aluminum, you can compare the effects of market volatilities on Small Cap and Century Aluminum 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 Small Cap with a short position of Century Aluminum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Century Aluminum.
Diversification Opportunities for Small Cap and Century Aluminum
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Small and Century is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Century Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Aluminum and Small Cap 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 Small Cap Core are associated (or correlated) with Century Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Aluminum has no effect on the direction of Small Cap i.e., Small Cap and Century Aluminum go up and down completely randomly.
Pair Corralation between Small Cap and Century Aluminum
Assuming the 90 days horizon Small Cap is expected to generate 3.46 times less return on investment than Century Aluminum. But when comparing it to its historical volatility, Small Cap Core is 2.91 times less risky than Century Aluminum. It trades about 0.19 of its potential returns per unit of risk. Century Aluminum is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 1,823 in Century Aluminum on August 27, 2024 and sell it today you would earn a total of 426.00 from holding Century Aluminum or generate 23.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Core vs. Century Aluminum
Performance |
| Timeline |
| Small Cap Core |
| Century Aluminum |
Small Cap and Century Aluminum Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Century Aluminum
The main advantage of trading using opposite Small Cap and Century Aluminum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Century Aluminum 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 Century Aluminum will offset losses from the drop in Century Aluminum's long position.| Small Cap vs. Pro Blend Moderate Term | Small Cap vs. Hartford Moderate Allocation | Small Cap vs. Qs Moderate Growth | Small Cap vs. Dimensional Retirement Income |
| Century Aluminum vs. Kaiser Aluminum | Century Aluminum vs. Commercial Metals | Century Aluminum vs. Steel Dynamics | Century Aluminum vs. Reliance Steel Aluminum |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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