Correlation Between Alumina and Aluminum

Can any of the company-specific risk be diversified away by investing in both Alumina and 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 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 Aluminum of, you can compare the effects of market volatilities on Alumina and 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 Aluminum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alumina and Aluminum.

Diversification Opportunities for Alumina and Aluminum

0.93

Correlation Coefficient

Alumina  Aluminum

Almost no diversification

The 3 months correlation between Alumina and Aluminum is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Alumina Limited and Aluminum of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 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 Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aluminum has no effect on the direction of Alumina i.e., Alumina and Aluminum go up and down completely randomly.

Pair Corralation between Alumina and Aluminum

Assuming the 90 days horizon Alumina Limited is expected to generate 0.8 times more return on investment than Aluminum. However, Alumina Limited is 1.25 times less risky than Aluminum. It trades about 0.12 of its potential returns per unit of risk. Aluminum of is currently generating about 0.06 per unit of risk. If you would invest  84.00  in Alumina Limited on January 27, 2024 and sell it today you would earn a total of  8.00  from holding Alumina Limited or generate 9.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Alumina Limited  vs.  Aluminum of

Alumina Limited

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alumina Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain primary indicators, Alumina reported solid returns over the last few months and may actually be approaching a breakup point.

Aluminum

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aluminum of are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain primary indicators, Aluminum reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alumina and Aluminum

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

The idea behind Alumina Limited and Aluminum of 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.