Correlation Between Alcoa Corp and Royal Gold

Can any of the company-specific risk be diversified away by investing in both Alcoa Corp and Royal Gold 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 Alcoa Corp and Royal Gold into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alcoa Corp and Royal Gold, you can compare the effects of market volatilities on Alcoa Corp and Royal Gold 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 Alcoa Corp with a short position of Royal Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa Corp and Royal Gold.

Diversification Opportunities for Alcoa Corp and Royal Gold

0.91

Correlation Coefficient

Alcoa Corp  Royal Gold

Almost no diversification

The 3 months correlation between Alcoa and Royal is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Royal Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Gold and Alcoa Corp 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 Alcoa Corp are associated (or correlated) with Royal Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Gold has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Royal Gold go up and down completely randomly.

Pair Corralation between Alcoa Corp and Royal Gold

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 1.42 times more return on investment than Royal Gold. However, Alcoa Corp is 1.42 times more volatile than Royal Gold. It trades about 0.18 of its potential returns per unit of risk. Royal Gold is currently generating about 0.07 per unit of risk. If you would invest  3,402  in Alcoa Corp on January 30, 2024 and sell it today you would earn a total of  286.00  from holding Alcoa Corp or generate 8.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Alcoa Corp  vs.  Royal Gold

Alcoa Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Royal Gold

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Gold are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating essential indicators, Royal Gold may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Alcoa Corp and Royal Gold

The main advantage of trading using opposite Alcoa Corp and Royal Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa Corp position performs unexpectedly, Royal Gold 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 Royal Gold will offset losses from the drop in Royal Gold's long position.

The idea behind Alcoa Corp and Royal Gold 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.