Correlation Between Tenaris SA and Kaiser Aluminum

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

By analyzing existing cross correlation between Tenaris SA ADR and Kaiser Aluminum, you can compare the effects of market volatilities on Tenaris SA and Kaiser Aluminum 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 Tenaris SA with a short position of Kaiser Aluminum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tenaris SA and Kaiser Aluminum.

Diversification Opportunities for Tenaris SA and Kaiser Aluminum

0.77

Correlation Coefficient

Tenaris SA  Kaiser Aluminum

Poor diversification

The 3 months correlation between Tenaris and Kaiser is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Tenaris SA ADR and Kaiser Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaiser Aluminum and Tenaris SA 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 Tenaris SA ADR are associated (or correlated) with Kaiser Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaiser Aluminum has no effect on the direction of Tenaris SA i.e., Tenaris SA and Kaiser Aluminum go up and down completely randomly.

Pair Corralation between Tenaris SA and Kaiser Aluminum

Allowing for the 90-day total investment horizon Tenaris SA ADR is expected to generate 0.93 times more return on investment than Kaiser Aluminum. However, Tenaris SA ADR is 1.08 times less risky than Kaiser Aluminum. It trades about -0.04 of its potential returns per unit of risk. Kaiser Aluminum is currently generating about -0.57 per unit of risk. If you would invest  3,767  in Tenaris SA ADR on September 24, 2024 and sell it today you would lose (48.00) from holding Tenaris SA ADR or give up 1.27% of portfolio value over 90 days.

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

Tenaris SA ADR  vs.  Kaiser Aluminum

Tenaris SA ADR

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tenaris SA ADR are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Tenaris SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Kaiser Aluminum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kaiser Aluminum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Kaiser Aluminum is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Tenaris SA and Kaiser Aluminum

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

The idea behind Tenaris SA ADR and Kaiser Aluminum 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.