Correlation Between Alcoa Corp and Allegheny Technologies

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Can any of the company-specific risk be diversified away by investing in both Alcoa Corp and Allegheny Technologies 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 Allegheny Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alcoa Corp and Allegheny Technologies Incorporated, you can compare the effects of market volatilities on Alcoa Corp and Allegheny Technologies 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 Allegheny Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa Corp and Allegheny Technologies.

Diversification Opportunities for Alcoa Corp and Allegheny Technologies

0.32
  Correlation Coefficient

Weak diversification

The 3 months correlation between Alcoa and Allegheny is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Allegheny Technologies Incorpo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegheny Technologies 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 Allegheny Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegheny Technologies has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Allegheny Technologies go up and down completely randomly.

Pair Corralation between Alcoa Corp and Allegheny Technologies

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the Allegheny Technologies. In addition to that, Alcoa Corp is 1.44 times more volatile than Allegheny Technologies Incorporated. It trades about -0.03 of its total potential returns per unit of risk. Allegheny Technologies Incorporated is currently generating about 0.06 per unit of volatility. If you would invest  2,742  in Allegheny Technologies Incorporated on December 29, 2023 and sell it today you would earn a total of  2,375  from holding Allegheny Technologies Incorporated or generate 86.62% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Alcoa Corp  vs.  Allegheny Technologies Incorpo

 Performance 
       Timeline  
Alcoa Corp 

Risk-Adjusted Performance

1 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Alcoa Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Allegheny Technologies 

Risk-Adjusted Performance

7 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Allegheny Technologies Incorporated are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Allegheny Technologies demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Alcoa Corp and Allegheny Technologies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alcoa Corp and Allegheny Technologies

The main advantage of trading using opposite Alcoa Corp and Allegheny Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa Corp position performs unexpectedly, Allegheny Technologies 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 Allegheny Technologies will offset losses from the drop in Allegheny Technologies' long position.
The idea behind Alcoa Corp and Allegheny Technologies Incorporated 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.
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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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