Correlation Between Alumina Limited and Century Aluminum

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

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

Diversification Opportunities for Alumina Limited and Century Aluminum

0.98

Correlation Coefficient

Alumina Limited  Century Aluminum

Almost no diversification

The 3 months correlation between Alumina and Century is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Alumina Limited PK and Century Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Aluminum and Alumina Limited 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 PK are associated (or correlated) with Century Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Aluminum has no effect on the direction of Alumina Limited i.e., Alumina Limited and Century Aluminum go up and down completely randomly.

Pair Corralation between Alumina Limited and Century Aluminum

Assuming the 90 days horizon Alumina Limited PK is expected to generate 0.85 times more return on investment than Century Aluminum. However, Alumina Limited PK is 1.18 times less risky than Century Aluminum. It trades about 0.18 of its potential returns per unit of risk. Century Aluminum is currently generating about 0.04 per unit of risk. If you would invest  385.00  in Alumina Limited PK on February 7, 2024 and sell it today you would earn a total of  38.00  from holding Alumina Limited PK or generate 9.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Alumina Limited PK  vs.  Century Aluminum

Alumina Limited PK

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alumina Limited PK are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Alumina Limited showed solid returns over the last few months and may actually be approaching a breakup point.

Century Aluminum

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Century Aluminum are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Century Aluminum showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alumina Limited and Century Aluminum

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

The idea behind Alumina Limited PK and Century 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.

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 Transaction History module to view history of all your transactions and understand their impact on performance.