Correlation Between Chevron Corp and Alcoa Corp
Can any of the company-specific risk be diversified away by investing in both Chevron Corp 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 Chevron Corp and Alcoa Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chevron Corp and Alcoa Corp, you can compare the effects of market volatilities on Chevron Corp 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 Chevron Corp with a short position of Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chevron Corp and Alcoa Corp.
Diversification Opportunities for Chevron Corp and Alcoa Corp
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Chevron and Alcoa is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and Chevron 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 Chevron Corp 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 Chevron Corp i.e., Chevron Corp and Alcoa Corp go up and down completely randomly.
Pair Corralation between Chevron Corp and Alcoa Corp
Considering the 90-day investment horizon Chevron Corp is expected to generate 0.47 times more return on investment than Alcoa Corp. However, Chevron Corp is 2.13 times less risky than Alcoa Corp. It trades about 0.01 of its potential returns per unit of risk. Alcoa Corp is currently generating about -0.01 per unit of risk. If you would invest 15,435 in Chevron Corp on January 25, 2024 and sell it today you would earn a total of 850.00 from holding Chevron Corp or generate 5.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chevron Corp vs. Alcoa Corp
Performance |
| Timeline |
| Chevron Corp |
| Alcoa Corp |
Chevron Corp and Alcoa Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chevron Corp and Alcoa Corp
The main advantage of trading using opposite Chevron Corp and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chevron Corp 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 Chevron Corp 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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