Correlation Between Alcoa Corp and Exxaro Resources

Can any of the company-specific risk be diversified away by investing in both Alcoa Corp and Exxaro Resources 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 Exxaro Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alcoa Corp and Exxaro Resources Limited, you can compare the effects of market volatilities on Alcoa Corp and Exxaro Resources 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 Exxaro Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa Corp and Exxaro Resources.

Diversification Opportunities for Alcoa Corp and Exxaro Resources

-0.84

Correlation Coefficient

Alcoa Corp  Exxaro Resources

Pay attention - limited upside

The 3 months correlation between Alcoa and Exxaro is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Exxaro Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxaro Resources 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 Exxaro Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxaro Resources has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Exxaro Resources go up and down completely randomly.

Pair Corralation between Alcoa Corp and Exxaro Resources

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 0.54 times more return on investment than Exxaro Resources. However, Alcoa Corp is 1.84 times less risky than Exxaro Resources. It trades about 0.07 of its potential returns per unit of risk. Exxaro Resources Limited is currently generating about -0.06 per unit of risk. If you would invest  3,634  in Alcoa Corp on February 8, 2024 and sell it today you would earn a total of  123.00  from holding Alcoa Corp or generate 3.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	22.73%
Values	Daily Returns

Alcoa Corp  vs.  Exxaro Resources Limited

Alcoa Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Exxaro Resources

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Exxaro Resources Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Exxaro Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alcoa Corp and Exxaro Resources

The main advantage of trading using opposite Alcoa Corp and Exxaro Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa Corp position performs unexpectedly, Exxaro Resources 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 Exxaro Resources will offset losses from the drop in Exxaro Resources' long position.

The idea behind Alcoa Corp and Exxaro Resources Limited 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.