Correlation Between City Holding and Alcoa Corp

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

Diversification Opportunities for City Holding and Alcoa Corp

0.69
  Correlation Coefficient

Poor diversification

The 3 months correlation between City and Alcoa is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding City Holding and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and City Holding 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 City Holding 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 City Holding i.e., City Holding and Alcoa Corp go up and down completely randomly.

Pair Corralation between City Holding and Alcoa Corp

Given the investment horizon of 90 days City Holding is expected to generate 7.38 times less return on investment than Alcoa Corp. But when comparing it to its historical volatility, City Holding is 1.9 times less risky than Alcoa Corp. It trades about 0.1 of its potential returns per unit of risk. Alcoa Corp is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest  2,660  in Alcoa Corp on December 29, 2023 and sell it today you would earn a total of  661.00  from holding Alcoa Corp or generate 24.85% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

City Holding  vs.  Alcoa Corp

 Performance 
       Timeline  
City Holding 

Risk-Adjusted Performance

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Very Weak
Over the last 90 days City Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, City Holding is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
Alcoa Corp 

Risk-Adjusted Performance

0 of 100

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

City Holding and Alcoa Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with City Holding and Alcoa Corp

The main advantage of trading using opposite City Holding and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if City Holding 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 City Holding 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.

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