Correlation Between Alcoa Corp and FAM

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

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

Diversification Opportunities for Alcoa Corp and FAM

0.83

Correlation Coefficient

Alcoa Corp  FAM

Very poor diversification

The 3 months correlation between Alcoa and FAM is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and FAM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAM 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 FAM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FAM has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and FAM go up and down completely randomly.

Pair Corralation between Alcoa Corp and FAM

If you would invest  4,009  in Alcoa Corp on September 1, 2024 and sell it today you would earn a total of  634.00  from holding Alcoa Corp or generate 15.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	4.76%
Values	Daily Returns

Alcoa Corp  vs.  FAM

Alcoa Corp

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 18 (%) 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.

FAM

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days FAM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very uncertain basic indicators, FAM displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alcoa Corp and FAM

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

The idea behind Alcoa Corp and FAM 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.