Correlation Between Applied Materials and Alcoa Corp

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

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

Diversification Opportunities for Applied Materials and Alcoa Corp

0.38

Correlation Coefficient

Applied Materials  Alcoa Corp

Weak diversification

The 3 months correlation between Applied and Alcoa is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and Applied Materials 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 Applied Materials 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 Applied Materials i.e., Applied Materials and Alcoa Corp go up and down completely randomly.

Pair Corralation between Applied Materials and Alcoa Corp

Given the investment horizon of 90 days Applied Materials is expected to under-perform the Alcoa Corp. But the stock apears to be less risky and, when comparing its historical volatility, Applied Materials is 1.22 times less risky than Alcoa Corp. The stock trades about -0.09 of its potential returns per unit of risk. The Alcoa Corp is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  3,718  in Alcoa Corp on February 3, 2024 and sell it today you would lose (124.00) from holding Alcoa Corp or give up 3.34% of portfolio value over 90 days.

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

Applied Materials  vs.  Alcoa Corp

Applied Materials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Materials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Applied Materials unveiled solid returns over the last few months and may actually be approaching a breakup point.

Alcoa Corp

Risk-Adjusted Performance

13 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Applied Materials and Alcoa Corp

The main advantage of trading using opposite Applied Materials and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials 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.

The idea behind Applied Materials and Alcoa Corp 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.