Correlation Between Alcoa Corp and Vanguard Financials

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

By analyzing existing cross correlation between Alcoa Corp and Vanguard Financials Index, you can compare the effects of market volatilities on Alcoa Corp and Vanguard Financials 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 Vanguard Financials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa Corp and Vanguard Financials.

Diversification Opportunities for Alcoa Corp and Vanguard Financials

0.5

Correlation Coefficient

Alcoa Corp  Vanguard Financials

Very weak diversification

The 3 months correlation between Alcoa and Vanguard is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Vanguard Financials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Financials Index 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 Vanguard Financials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Financials Index has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Vanguard Financials go up and down completely randomly.

Pair Corralation between Alcoa Corp and Vanguard Financials

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 2.66 times more return on investment than Vanguard Financials. However, Alcoa Corp is 2.66 times more volatile than Vanguard Financials Index. It trades about 0.2 of its potential returns per unit of risk. Vanguard Financials Index is currently generating about -0.18 per unit of risk. If you would invest  3,379  in Alcoa Corp on January 28, 2024 and sell it today you would earn a total of  309.00  from holding Alcoa Corp or generate 9.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Alcoa Corp  vs.  Vanguard Financials Index

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.

Vanguard Financials Index

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Financials Index are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, Vanguard Financials is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Alcoa Corp and Vanguard Financials

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

The idea behind Alcoa Corp and Vanguard Financials Index 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.