Correlation Between Alcoa Corp and IShares Edge

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

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

Diversification Opportunities for Alcoa Corp and IShares Edge

0.64

Correlation Coefficient

Alcoa Corp  IShares Edge

Poor diversification

The 3 months correlation between Alcoa and IShares is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and iShares Edge MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Edge MSCI 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 IShares Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Edge MSCI has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and IShares Edge go up and down completely randomly.

Pair Corralation between Alcoa Corp and IShares Edge

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 2.37 times less return on investment than IShares Edge. In addition to that, Alcoa Corp is 3.74 times more volatile than iShares Edge MSCI. It trades about 0.01 of its total potential returns per unit of risk. iShares Edge MSCI is currently generating about 0.07 per unit of volatility. If you would invest  2,311  in iShares Edge MSCI on July 19, 2024 and sell it today you would earn a total of  573.00  from holding iShares Edge MSCI or generate 24.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Alcoa Corp  vs.  iShares Edge MSCI

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 unfluctuating basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

iShares Edge MSCI

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Edge MSCI are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, IShares Edge is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Alcoa Corp and IShares Edge

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

The idea behind Alcoa Corp and iShares Edge MSCI 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..