Correlation Between Alcoa Corp and American Airlines
Can any of the company-specific risk be diversified away by investing in both Alcoa Corp and American Airlines 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 American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alcoa Corp and American Airlines Group, you can compare the effects of market volatilities on Alcoa Corp and American Airlines 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 American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa Corp and American Airlines.
Diversification Opportunities for Alcoa Corp and American Airlines
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Alcoa and American is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines 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 American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and American Airlines go up and down completely randomly.
Pair Corralation between Alcoa Corp and American Airlines
Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 1.07 times more return on investment than American Airlines. However, Alcoa Corp is 1.07 times more volatile than American Airlines Group. It trades about 0.34 of its potential returns per unit of risk. American Airlines Group is currently generating about -0.08 per unit of risk. If you would invest 2,525 in Alcoa Corp on January 25, 2024 and sell it today you would earn a total of 1,095 from holding Alcoa Corp or generate 43.37% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Alcoa Corp vs. American Airlines Group
Performance |
Timeline |
Alcoa Corp |
American Airlines |
Alcoa Corp and American Airlines Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Alcoa Corp and American Airlines
The main advantage of trading using opposite Alcoa Corp and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa Corp position performs unexpectedly, American Airlines 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 American Airlines will offset losses from the drop in American Airlines' long position.Alcoa Corp vs. Constellium Nv | Alcoa Corp vs. Century Aluminum | Alcoa Corp vs. China Hongqiao Group | Alcoa Corp vs. Kaiser Aluminum |
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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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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