Correlation Between Alcoa Corp and IShares Consumer

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

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

Diversification Opportunities for Alcoa Corp and IShares Consumer

0.88

Correlation Coefficient

Alcoa Corp  IShares Consumer

Very poor diversification

The 3 months correlation between Alcoa and IShares is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and iShares Consumer Discretionary in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Consumer Dis 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 IShares Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Consumer Dis has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and IShares Consumer go up and down completely randomly.

Pair Corralation between Alcoa Corp and IShares Consumer

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 3.72 times more return on investment than IShares Consumer. However, Alcoa Corp is 3.72 times more volatile than iShares Consumer Discretionary. It trades about 0.22 of its potential returns per unit of risk. iShares Consumer Discretionary is currently generating about 0.58 per unit of risk. If you would invest  4,057  in Alcoa Corp on September 2, 2024 and sell it today you would earn a total of  586.00  from holding Alcoa Corp or generate 14.44% return on investment over 90 days.

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

Alcoa Corp  vs.  iShares Consumer Discretionary

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.

iShares Consumer Dis

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Consumer Discretionary are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, IShares Consumer exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alcoa Corp and IShares Consumer

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

The idea behind Alcoa Corp and iShares Consumer Discretionary 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.