Correlation Between Alcoa Corp and Invesco DWA

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

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

Diversification Opportunities for Alcoa Corp and Invesco DWA

0.92

Correlation Coefficient

Alcoa Corp  Invesco DWA

Almost no diversification

The 3 months correlation between Alcoa and Invesco is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Invesco DWA Industrials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Industrials 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 Invesco DWA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DWA Industrials has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Invesco DWA go up and down completely randomly.

Pair Corralation between Alcoa Corp and Invesco DWA

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 2.29 times more return on investment than Invesco DWA. However, Alcoa Corp is 2.29 times more volatile than Invesco DWA Industrials. It trades about 0.16 of its potential returns per unit of risk. Invesco DWA Industrials is currently generating about 0.19 per unit of risk. If you would invest  3,127  in Alcoa Corp on September 12, 2024 and sell it today you would earn a total of  982.00  from holding Alcoa Corp or generate 31.4% return on investment over 90 days.

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

Alcoa Corp  vs.  Invesco DWA Industrials

Alcoa Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Invesco DWA Industrials

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Industrials are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Invesco DWA displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alcoa Corp and Invesco DWA

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

The idea behind Alcoa Corp and Invesco DWA Industrials 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.