Correlation Between Anheuser Busch and Alcoa Corp

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

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

Diversification Opportunities for Anheuser Busch and Alcoa Corp

-0.71

Correlation Coefficient

Anheuser Busch  Alcoa Corp

Pay attention - limited upside

The 3 months correlation between Anheuser and Alcoa is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Anheuser Busch Inbev and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and Anheuser Busch 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 Anheuser Busch Inbev 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 Anheuser Busch i.e., Anheuser Busch and Alcoa Corp go up and down completely randomly.

Pair Corralation between Anheuser Busch and Alcoa Corp

Considering the 90-day investment horizon Anheuser Busch Inbev is expected to under-perform the Alcoa Corp. But the stock apears to be less risky and, when comparing its historical volatility, Anheuser Busch Inbev is 2.68 times less risky than Alcoa Corp. The stock trades about -0.1 of its potential returns per unit of risk. The Alcoa Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,402  in Alcoa Corp on January 31, 2024 and sell it today you would earn a total of  112.00  from holding Alcoa Corp or generate 3.29% return on investment over 90 days.

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

Anheuser Busch Inbev  vs.  Alcoa Corp

Anheuser Busch Inbev

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Anheuser Busch Inbev has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Anheuser Busch is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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

Pair Trading with Anheuser Busch and Alcoa Corp

The main advantage of trading using opposite Anheuser Busch and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Anheuser Busch 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 Anheuser Busch Inbev 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.