Correlation Between Alcoa Corp and College Retirement

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

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

Diversification Opportunities for Alcoa Corp and College Retirement

0.88

Correlation Coefficient

Alcoa Corp  College Retirement

Very poor diversification

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

Pair Corralation between Alcoa Corp and College Retirement

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 3.29 times more return on investment than College Retirement. However, Alcoa Corp is 3.29 times more volatile than College Retirement Equities. It trades about 0.2 of its potential returns per unit of risk. College Retirement Equities is currently generating about 0.25 per unit of risk. If you would invest  2,890  in Alcoa Corp on September 9, 2024 and sell it today you would earn a total of  1,359  from holding Alcoa Corp or generate 47.02% 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.  College Retirement Equities

Alcoa Corp

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 16 (%) 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.

College Retirement

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in College Retirement Equities are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, College Retirement showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alcoa Corp and College Retirement

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

The idea behind Alcoa Corp and College Retirement Equities 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.