Correlation Between United Parcel and Alcoa Corp

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Can any of the company-specific risk be diversified away by investing in both United Parcel 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 United Parcel and Alcoa Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United Parcel Service and Alcoa Corp, you can compare the effects of market volatilities on United Parcel 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 United Parcel with a short position of Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Parcel and Alcoa Corp.

Diversification Opportunities for United Parcel and Alcoa Corp

0.51
  Correlation Coefficient

Very weak diversification

The 3 months correlation between United and Alcoa is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding United Parcel Service and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and United Parcel 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 United Parcel Service 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 United Parcel i.e., United Parcel and Alcoa Corp go up and down completely randomly.

Pair Corralation between United Parcel and Alcoa Corp

Considering the 90-day investment horizon United Parcel is expected to generate 24.94 times less return on investment than Alcoa Corp. But when comparing it to its historical volatility, United Parcel Service is 1.3 times less risky than Alcoa Corp. It trades about 0.02 of its potential returns per unit of risk. Alcoa Corp is currently generating about 0.44 of returns per unit of risk over similar time horizon. If you would invest  2,622  in Alcoa Corp on December 30, 2023 and sell it today you would earn a total of  757.00  from holding Alcoa Corp or generate 28.87% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

United Parcel Service  vs.  Alcoa Corp

 Performance 
       Timeline  
United Parcel Service 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days United Parcel Service has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, United Parcel is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.
Alcoa Corp 

Risk-Adjusted Performance

1 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Alcoa Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

United Parcel and Alcoa Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with United Parcel and Alcoa Corp

The main advantage of trading using opposite United Parcel and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Parcel 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 United Parcel Service 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.
Check out your portfolio center.
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.

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