Correlation Between Alumina and Kaiser Aluminum

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

By analyzing existing cross correlation between Alumina Limited and Kaiser Aluminum, you can compare the effects of market volatilities on Alumina and Kaiser Aluminum 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 Alumina with a short position of Kaiser Aluminum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alumina and Kaiser Aluminum.

Diversification Opportunities for Alumina and Kaiser Aluminum

0.94

Correlation Coefficient

Alumina  Kaiser Aluminum

Almost no diversification

The 3 months correlation between Alumina and Kaiser is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Alumina Limited and Kaiser Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaiser Aluminum and Alumina 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 Alumina Limited are associated (or correlated) with Kaiser Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaiser Aluminum has no effect on the direction of Alumina i.e., Alumina and Kaiser Aluminum go up and down completely randomly.

Pair Corralation between Alumina and Kaiser Aluminum

Assuming the 90 days horizon Alumina Limited is expected to generate 0.99 times more return on investment than Kaiser Aluminum. However, Alumina Limited is 1.01 times less risky than Kaiser Aluminum. It trades about 0.21 of its potential returns per unit of risk. Kaiser Aluminum is currently generating about 0.11 per unit of risk. If you would invest  92.00  in Alumina Limited on February 3, 2024 and sell it today you would earn a total of  10.00  from holding Alumina Limited or generate 10.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

Alumina Limited  vs.  Kaiser Aluminum

Alumina Limited

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alumina Limited are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady primary indicators, Alumina reported solid returns over the last few months and may actually be approaching a breakup point.

Kaiser Aluminum

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kaiser Aluminum are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady essential indicators, Kaiser Aluminum unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alumina and Kaiser Aluminum

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

The idea behind Alumina Limited and Kaiser Aluminum 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.