Correlation Between Kaiser Aluminum and Alcoa Corp
Can any of the company-specific risk be diversified away by investing in both Kaiser Aluminum 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 Kaiser Aluminum and Alcoa Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Kaiser Aluminum and Alcoa Corp, you can compare the effects of market volatilities on Kaiser Aluminum 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 Kaiser Aluminum with a short position of Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kaiser Aluminum and Alcoa Corp.
Diversification Opportunities for Kaiser Aluminum and Alcoa Corp
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Kaiser and Alcoa is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Kaiser Aluminum and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and Kaiser Aluminum 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 Kaiser Aluminum 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 Kaiser Aluminum i.e., Kaiser Aluminum and Alcoa Corp go up and down completely randomly.
Pair Corralation between Kaiser Aluminum and Alcoa Corp
Given the investment horizon of 90 days Kaiser Aluminum is expected to generate 1.33 times less return on investment than Alcoa Corp. But when comparing it to its historical volatility, Kaiser Aluminum is 1.35 times less risky than Alcoa Corp. It trades about 0.26 of its potential returns per unit of risk. Alcoa Corp is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 3,135 in Alcoa Corp on January 20, 2024 and sell it today you would earn a total of 412.00 from holding Alcoa Corp or generate 13.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Kaiser Aluminum vs. Alcoa Corp
Performance |
| Timeline |
| Kaiser Aluminum |
| Alcoa Corp |
Kaiser Aluminum and Alcoa Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Kaiser Aluminum and Alcoa Corp
The main advantage of trading using opposite Kaiser Aluminum and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kaiser Aluminum 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.| Kaiser Aluminum vs. Century Aluminum | Kaiser Aluminum vs. China Hongqiao Group | Kaiser Aluminum vs. Constellium Nv | Kaiser Aluminum vs. Alcoa Corp |
| Alcoa Corp vs. Constellium Nv | Alcoa Corp vs. Century Aluminum | Alcoa Corp vs. China Hongqiao Group | Alcoa Corp vs. Kaiser Aluminum |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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