Correlation Between GM and Alcoa Corp
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and Alcoa Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Alcoa Corp, you can compare the effects of market volatilities on GM 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 GM with a short position of Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Alcoa Corp.
Diversification Opportunities for GM and Alcoa Corp
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Alcoa is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and GM 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 General Motors 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 GM i.e., GM and Alcoa Corp go up and down completely randomly.
Pair Corralation between GM and Alcoa Corp
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.57 times more return on investment than Alcoa Corp. However, General Motors is 1.75 times less risky than Alcoa Corp. It trades about 0.08 of its potential returns per unit of risk. Alcoa Corp is currently generating about 0.02 per unit of risk. If you would invest 3,192 in General Motors on January 19, 2024 and sell it today you would earn a total of 1,052 from holding General Motors or generate 32.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Alcoa Corp
Performance |
| Timeline |
| General Motors |
| Alcoa Corp |
GM and Alcoa Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Alcoa Corp
The main advantage of trading using opposite GM and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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.| Alcoa Corp vs. Immutep Ltd ADR | Alcoa Corp vs. Home Federal Bancorp | Alcoa Corp vs. Anheuser Busch Inbev | Alcoa Corp vs. Marker Therapeutics |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
Other Complementary Tools
| Stock Screener Find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook. | |
| Funds Screener Find actively-traded funds from around the world traded on over 30 global exchanges | |
| Pair Correlation Compare performance and examine fundamental relationship between any two equity instruments | |
| Price Ceiling Movement Calculate and plot Price Ceiling Movement for different equity instruments | |
| Top Crypto Exchanges Search and analyze digital assets across top global cryptocurrency exchanges | |
| Equity Forecasting Use basic forecasting models to generate price predictions and determine price momentum |