Correlation Between Alcoa Corp and International Business

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

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

Diversification Opportunities for Alcoa Corp and International Business

-0.05

Correlation Coefficient

Alcoa Corp  International Business

Good diversification

The 3 months correlation between Alcoa and International is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Business 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 International Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Business has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and International Business go up and down completely randomly.

Pair Corralation between Alcoa Corp and International Business

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 1.1 times more return on investment than International Business. However, Alcoa Corp is 1.1 times more volatile than International Business Machines. It trades about 0.18 of its potential returns per unit of risk. International Business Machines is currently generating about -0.28 per unit of risk. If you would invest  3,321  in Alcoa Corp on January 27, 2024 and sell it today you would earn a total of  273.00  from holding Alcoa Corp or generate 8.22% return on investment over 90 days.

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

Alcoa Corp  vs.  International Business Machine

Alcoa Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 7 (%) 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.

International Business

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Business Machines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental drivers remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Alcoa Corp and International Business

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

The idea behind Alcoa Corp and International Business Machines 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.