Correlation Between Alcoa Corp and Karora Resources

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

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

Diversification Opportunities for Alcoa Corp and Karora Resources

0.72

Correlation Coefficient

Alcoa Corp  Karora Resources

Poor diversification

The 3 months correlation between Alcoa and Karora is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Karora Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Karora Resources 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 Karora Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Karora Resources has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Karora Resources go up and down completely randomly.

Pair Corralation between Alcoa Corp and Karora Resources

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 2.08 times less return on investment than Karora Resources. In addition to that, Alcoa Corp is 1.08 times more volatile than Karora Resources. It trades about 0.02 of its total potential returns per unit of risk. Karora Resources is currently generating about 0.05 per unit of volatility. If you would invest  326.00  in Karora Resources on September 5, 2024 and sell it today you would earn a total of  157.00  from holding Karora Resources or generate 48.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	82.83%
Values	Daily Returns

Alcoa Corp  vs.  Karora Resources

Alcoa Corp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 17 (%) 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.

Karora Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Karora Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Karora Resources 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 Karora Resources

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

The idea behind Alcoa Corp and Karora Resources 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.