Correlation Between INFORMATION SVC and Alcoa Corp

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

Diversification Opportunities for INFORMATION SVC and Alcoa Corp

0.68
  Correlation Coefficient

Poor diversification

The 3 months correlation between INFORMATION and Alcoa is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding INFORMATION SVC GRP and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and INFORMATION SVC 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 INFORMATION SVC GRP are associated (or correlated) with Alcoa Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alcoa Corp has no effect on the direction of INFORMATION SVC i.e., INFORMATION SVC and Alcoa Corp go up and down completely randomly.

Pair Corralation between INFORMATION SVC and Alcoa Corp

Assuming the 90 days horizon INFORMATION SVC GRP is expected to under-perform the Alcoa Corp. But the stock apears to be less risky and, when comparing its historical volatility, INFORMATION SVC GRP is 1.47 times less risky than Alcoa Corp. The stock trades about -0.02 of its potential returns per unit of risk. The Alcoa Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,584  in Alcoa Corp on September 12, 2024 and sell it today you would earn a total of  1,546  from holding Alcoa Corp or generate 59.83% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

INFORMATION SVC GRP  vs.  Alcoa Corp

 Performance 
       Timeline  
INFORMATION SVC GRP 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in INFORMATION SVC GRP are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, INFORMATION SVC reported solid returns over the last few months and may actually be approaching a breakup point.
Alcoa Corp 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Alcoa Corp reported solid returns over the last few months and may actually be approaching a breakup point.

INFORMATION SVC and Alcoa Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with INFORMATION SVC and Alcoa Corp

The main advantage of trading using opposite INFORMATION SVC and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if INFORMATION SVC position performs unexpectedly, Alcoa Corp 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 Alcoa Corp will offset losses from the drop in Alcoa Corp's long position.
The idea behind INFORMATION SVC GRP and Alcoa Corp 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.

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