Correlation Between First Majestic and Alcoa Corp
Can any of the company-specific risk be diversified away by investing in both First Majestic 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 First Majestic and Alcoa Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Majestic Silver and Alcoa Corp, you can compare the effects of market volatilities on First Majestic 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 First Majestic with a short position of Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Majestic and Alcoa Corp.
Diversification Opportunities for First Majestic and Alcoa Corp
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and Alcoa is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding First Majestic Silver and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and First Majestic 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 First Majestic Silver 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 First Majestic i.e., First Majestic and Alcoa Corp go up and down completely randomly.
Pair Corralation between First Majestic and Alcoa Corp
Allowing for the 90-day total investment horizon First Majestic Silver is expected to generate 1.06 times more return on investment than Alcoa Corp. However, First Majestic is 1.06 times more volatile than Alcoa Corp. It trades about -0.01 of its potential returns per unit of risk. Alcoa Corp is currently generating about -0.02 per unit of risk. If you would invest 1,057 in First Majestic Silver on January 24, 2024 and sell it today you would lose (402.00) from holding First Majestic Silver or give up 38.03% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.8% |
| Values | Daily Returns |
First Majestic Silver vs. Alcoa Corp
Performance |
| Timeline |
| First Majestic Silver |
| Alcoa Corp |
First Majestic and Alcoa Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Majestic and Alcoa Corp
The main advantage of trading using opposite First Majestic and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Majestic 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 First Majestic Silver 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.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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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