Correlation Between Alcoa Corp and LILLY

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

By analyzing existing cross correlation between Alcoa Corp and LILLY ELI 55, you can compare the effects of market volatilities on Alcoa Corp and LILLY 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 LILLY. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa Corp and LILLY.

Diversification Opportunities for Alcoa Corp and LILLY

-0.47

Correlation Coefficient

Alcoa Corp  LILLY

Very good diversification

The 3 months correlation between Alcoa and LILLY is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and LILLY ELI 55 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LILLY ELI 55 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 LILLY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LILLY ELI 55 has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and LILLY go up and down completely randomly.

Pair Corralation between Alcoa Corp and LILLY

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 5.67 times more return on investment than LILLY. However, Alcoa Corp is 5.67 times more volatile than LILLY ELI 55. It trades about 0.13 of its potential returns per unit of risk. LILLY ELI 55 is currently generating about -0.09 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  827.00  from holding Alcoa Corp or generate 26.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	79.69%
Values	Daily Returns

Alcoa Corp  vs.  LILLY ELI 55

Alcoa Corp

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 10 (%) 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.

LILLY ELI 55

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LILLY ELI 55 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, LILLY is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alcoa Corp and LILLY

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

The idea behind Alcoa Corp and LILLY ELI 55 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.