Correlation Between Freeport McMoran and Alcoa Corp
Can any of the company-specific risk be diversified away by investing in both Freeport McMoran 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 Freeport McMoran and Alcoa Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Freeport McMoran Copper Gold and Alcoa Corp, you can compare the effects of market volatilities on Freeport McMoran 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 Freeport McMoran with a short position of Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freeport McMoran and Alcoa Corp.
Diversification Opportunities for Freeport McMoran and Alcoa Corp
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Freeport and Alcoa is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Freeport McMoran Copper Gold and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and Freeport McMoran 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 Freeport McMoran Copper Gold 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 Freeport McMoran i.e., Freeport McMoran and Alcoa Corp go up and down completely randomly.
Pair Corralation between Freeport McMoran and Alcoa Corp
Considering the 90-day investment horizon Freeport McMoran is expected to generate 1.29 times less return on investment than Alcoa Corp. But when comparing it to its historical volatility, Freeport McMoran Copper Gold is 1.5 times less risky than Alcoa Corp. It trades about 0.31 of its potential returns per unit of risk. Alcoa Corp is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 3,158 in Alcoa Corp on January 26, 2024 and sell it today you would earn a total of 436.00 from holding Alcoa Corp or generate 13.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Freeport McMoran Copper Gold vs. Alcoa Corp
Performance |
| Timeline |
| Freeport McMoran Copper |
| Alcoa Corp |
Freeport McMoran and Alcoa Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Freeport McMoran and Alcoa Corp
The main advantage of trading using opposite Freeport McMoran and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freeport McMoran 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 Freeport McMoran Copper Gold 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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