Correlation Between Barrick Gold and Alcoa Corp

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

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

Diversification Opportunities for Barrick Gold and Alcoa Corp

-0.49

Correlation Coefficient

Barrick Gold  Alcoa Corp

Very good diversification

The 3 months correlation between Barrick and Alcoa is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Barrick Gold Corp and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and Barrick Gold 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 Barrick Gold Corp 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 Barrick Gold i.e., Barrick Gold and Alcoa Corp go up and down completely randomly.

Pair Corralation between Barrick Gold and Alcoa Corp

Given the investment horizon of 90 days Barrick Gold Corp is expected to under-perform the Alcoa Corp. But the stock apears to be less risky and, when comparing its historical volatility, Barrick Gold Corp is 1.68 times less risky than Alcoa Corp. The stock trades about -0.08 of its potential returns per unit of risk. The Alcoa Corp is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  3,015  in Alcoa Corp on September 1, 2024 and sell it today you would earn a total of  1,628  from holding Alcoa Corp or generate 54.0% return on investment over 90 days.

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

Barrick Gold Corp  vs.  Alcoa Corp

Barrick Gold Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Barrick Gold Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Alcoa Corp

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 18 (%) 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.

Pair Trading with Barrick Gold and Alcoa Corp

The main advantage of trading using opposite Barrick Gold and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Barrick Gold 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 Barrick Gold Corp 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.