Correlation Between Alcoa Corp and Essential Energy

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

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

Diversification Opportunities for Alcoa Corp and Essential Energy

0.77

Correlation Coefficient

Alcoa Corp  Essential Energy

Poor diversification

The 3 months correlation between Alcoa and Essential is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Essential Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essential Energy Services 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 Essential Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essential Energy Services has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Essential Energy go up and down completely randomly.

Pair Corralation between Alcoa Corp and Essential Energy

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 1.86 times less return on investment than Essential Energy. In addition to that, Alcoa Corp is 1.17 times more volatile than Essential Energy Services. It trades about 0.01 of its total potential returns per unit of risk. Essential Energy Services is currently generating about 0.02 per unit of volatility. If you would invest  27.00  in Essential Energy Services on September 13, 2024 and sell it today you would earn a total of  1.00  from holding Essential Energy Services or generate 3.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	29.29%
Values	Daily Returns

Alcoa Corp  vs.  Essential Energy Services

Alcoa Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 9 (%) 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.

Essential Energy Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Essential Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Essential Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Alcoa Corp and Essential Energy

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

The idea behind Alcoa Corp and Essential Energy Services 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.