Correlation Between Alcoa Corp and Leading Edge

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

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

Diversification Opportunities for Alcoa Corp and Leading Edge

-0.52

Correlation Coefficient

Alcoa Corp  Leading Edge

Excellent diversification

The 3 months correlation between Alcoa and Leading is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Leading Edge Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leading Edge Materials 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 Leading Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leading Edge Materials has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Leading Edge go up and down completely randomly.

Pair Corralation between Alcoa Corp and Leading Edge

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 0.54 times more return on investment than Leading Edge. However, Alcoa Corp is 1.86 times less risky than Leading Edge. It trades about 0.12 of its potential returns per unit of risk. Leading Edge Materials is currently generating about 0.03 per unit of risk. If you would invest  3,244  in Alcoa Corp on September 13, 2024 and sell it today you would earn a total of  718.00  from holding Alcoa Corp or generate 22.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Alcoa Corp  vs.  Leading Edge Materials

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.

Leading Edge Materials

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Leading Edge Materials are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Leading Edge may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Alcoa Corp and Leading Edge

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

The idea behind Alcoa Corp and Leading Edge Materials 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 Commodity Directory module to find actively traded commodities issued by global exchanges.