Correlation Between Baxter International and Alcoa Corp

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

Diversification Opportunities for Baxter International and Alcoa Corp

0.0
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Baxter and Alcoa is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Baxter International and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and Baxter International 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 Baxter International 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 Baxter International i.e., Baxter International and Alcoa Corp go up and down completely randomly.

Pair Corralation between Baxter International and Alcoa Corp

If you would invest  3,388  in Alcoa Corp on December 29, 2023 and sell it today you would lose (9.00) from holding Alcoa Corp or give up 0.27% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy1.61%
ValuesDaily Returns

Baxter International  vs.  Alcoa Corp

 Performance 
       Timeline  
Baxter International 

Risk-Adjusted Performance

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Very Weak
Over the last 90 days Baxter International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Baxter International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Alcoa Corp 

Risk-Adjusted Performance

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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.

Baxter International and Alcoa Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Baxter International and Alcoa Corp

The main advantage of trading using opposite Baxter International and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Baxter International 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 Baxter International 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.
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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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