Correlation Between Alcoa Corp and Xtrackers MSCI

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

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

Diversification Opportunities for Alcoa Corp and Xtrackers MSCI

0.79

Correlation Coefficient

Alcoa Corp  Xtrackers MSCI

Poor diversification

The 3 months correlation between Alcoa and Xtrackers is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Xtrackers MSCI Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI Japan 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 Xtrackers MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers MSCI Japan has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Xtrackers MSCI go up and down completely randomly.

Pair Corralation between Alcoa Corp and Xtrackers MSCI

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 1.92 times less return on investment than Xtrackers MSCI. In addition to that, Alcoa Corp is 2.78 times more volatile than Xtrackers MSCI Japan. It trades about 0.02 of its total potential returns per unit of risk. Xtrackers MSCI Japan is currently generating about 0.08 per unit of volatility. If you would invest  4,676  in Xtrackers MSCI Japan on August 29, 2024 and sell it today you would earn a total of  2,524  from holding Xtrackers MSCI Japan or generate 53.98% return on investment over 90 days.

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

Alcoa Corp  vs.  Xtrackers MSCI Japan

Alcoa Corp

Risk-Adjusted Performance

14 of 100

Solid

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 conflicting basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Xtrackers MSCI Japan

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Xtrackers MSCI Japan has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward-looking indicators, Xtrackers MSCI is not utilizing all of its potentials. The new stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Alcoa Corp and Xtrackers MSCI

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

The idea behind Alcoa Corp and Xtrackers MSCI Japan 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.