Correlation Between Alcoa Corp and Valhi

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

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

Diversification Opportunities for Alcoa Corp and Valhi

-0.13

Correlation Coefficient

Alcoa Corp  Valhi

Good diversification

The 3 months correlation between Alcoa and Valhi is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Valhi Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valhi Inc 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 Valhi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valhi Inc has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Valhi go up and down completely randomly.

Pair Corralation between Alcoa Corp and Valhi

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 0.57 times more return on investment than Valhi. However, Alcoa Corp is 1.74 times less risky than Valhi. It trades about 0.08 of its potential returns per unit of risk. Valhi Inc is currently generating about -0.05 per unit of risk. If you would invest  3,375  in Alcoa Corp on September 20, 2024 and sell it today you would earn a total of  469.00  from holding Alcoa Corp or generate 13.9% return on investment over 90 days.

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

Alcoa Corp  vs.  Valhi Inc

Alcoa Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 6 (%) 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.

Valhi Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valhi Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Alcoa Corp and Valhi

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

The idea behind Alcoa Corp and Valhi Inc 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.

Check out your portfolio center.

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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.