Correlation Between Snowflake and Alcoa Corp

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

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

Diversification Opportunities for Snowflake and Alcoa Corp

0.59

Correlation Coefficient

Snowflake  Alcoa Corp

Very weak diversification

The 3 months correlation between Snowflake and Alcoa is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Snowflake and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and Snowflake 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 Snowflake 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 Snowflake i.e., Snowflake and Alcoa Corp go up and down completely randomly.

Pair Corralation between Snowflake and Alcoa Corp

Given the investment horizon of 90 days Snowflake is expected to generate 18.47 times less return on investment than Alcoa Corp. In addition to that, Snowflake is 1.05 times more volatile than Alcoa Corp. It trades about 0.0 of its total potential returns per unit of risk. Alcoa Corp is currently generating about 0.08 per unit of volatility. If you would invest  2,742  in Alcoa Corp on August 27, 2024 and sell it today you would earn a total of  1,805  from holding Alcoa Corp or generate 65.83% return on investment over 90 days.

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

Snowflake  vs.  Alcoa Corp

Snowflake

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Snowflake are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Snowflake showed solid returns over the last few months and may actually be approaching a breakup point.

Alcoa Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 11 (%) 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.

Pair Trading with Snowflake and Alcoa Corp

The main advantage of trading using opposite Snowflake and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Snowflake 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 Snowflake 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.

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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.