Correlation Between Alcoa Corp and Orica

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

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

Diversification Opportunities for Alcoa Corp and Orica

-0.43

Correlation Coefficient

Alcoa Corp  Orica

Very good diversification

The 3 months correlation between Alcoa and Orica is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Orica Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orica Ltd ADR 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 Orica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orica Ltd ADR has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Orica go up and down completely randomly.

Pair Corralation between Alcoa Corp and Orica

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 0.87 times more return on investment than Orica. However, Alcoa Corp is 1.15 times less risky than Orica. It trades about 0.23 of its potential returns per unit of risk. Orica Ltd ADR is currently generating about -0.02 per unit of risk. If you would invest  3,020  in Alcoa Corp on September 5, 2024 and sell it today you would earn a total of  1,567  from holding Alcoa Corp or generate 51.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Alcoa Corp  vs.  Orica Ltd ADR

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.

Orica Ltd ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orica Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Orica is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alcoa Corp and Orica

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

The idea behind Alcoa Corp and Orica Ltd ADR 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.