Correlation Between Empire State and Alcoa Corp

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

By analyzing existing cross correlation between Empire State Realty and Alcoa Corp, you can compare the effects of market volatilities on Empire State and Alcoa Corp 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 Empire State with a short position of Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Empire State and Alcoa Corp.

Diversification Opportunities for Empire State and Alcoa Corp

0.53

Correlation Coefficient

Empire State  Alcoa Corp

Very weak diversification

The 3 months correlation between Empire and Alcoa is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Empire State Realty and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and Empire State 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 Empire State Realty are associated (or correlated) with Alcoa Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alcoa Corp has no effect on the direction of Empire State i.e., Empire State and Alcoa Corp go up and down completely randomly.

Pair Corralation between Empire State and Alcoa Corp

Given the investment horizon of 90 days Empire State is expected to generate 10.99 times less return on investment than Alcoa Corp. But when comparing it to its historical volatility, Empire State Realty is 2.43 times less risky than Alcoa Corp. It trades about 0.04 of its potential returns per unit of risk. Alcoa Corp is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  3,202  in Alcoa Corp on August 30, 2024 and sell it today you would earn a total of  1,386  from holding Alcoa Corp or generate 43.29% return on investment over 90 days.

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

Empire State Realty  vs.  Alcoa Corp

Empire State Realty

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Empire State Realty are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Empire State is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Alcoa Corp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Empire State and Alcoa Corp

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

The idea behind Empire State Realty and Alcoa Corp 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.