Correlation Between Meta Platforms and Alcoa Corp
Can any of the company-specific risk be diversified away by investing in both Meta Platforms 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 Meta Platforms and Alcoa Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Meta Platforms and Alcoa Corp, you can compare the effects of market volatilities on Meta Platforms 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 Meta Platforms with a short position of Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Meta Platforms and Alcoa Corp.
Diversification Opportunities for Meta Platforms and Alcoa Corp
-0.54 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Meta and Alcoa is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Meta Platforms and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and Meta Platforms 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 Meta Platforms 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 Meta Platforms i.e., Meta Platforms and Alcoa Corp go up and down completely randomly.
Pair Corralation between Meta Platforms and Alcoa Corp
Allowing for the 90-day total investment horizon Meta Platforms is expected to under-perform the Alcoa Corp. But the stock apears to be less risky and, when comparing its historical volatility, Meta Platforms is 1.0 times less risky than Alcoa Corp. The stock trades about -0.19 of its potential returns per unit of risk. The Alcoa Corp is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 6,650 in Alcoa Corp on January 24, 2024 and sell it today you would lose (3,015) from holding Alcoa Corp or give up 45.34% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 7.68% |
| Values | Daily Returns |
Meta Platforms vs. Alcoa Corp
Performance |
| Timeline |
| Meta Platforms |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Alcoa Corp |
Meta Platforms and Alcoa Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Meta Platforms and Alcoa Corp
The main advantage of trading using opposite Meta Platforms and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Meta Platforms 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.| Meta Platforms vs. Meta Platforms | Meta Platforms vs. Alphabet Inc Class A | Meta Platforms vs. Twilio Inc | Meta Platforms vs. Snap Inc |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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