Correlation Between Paramount Gold and Alcoa Corp

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

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

Diversification Opportunities for Paramount Gold and Alcoa Corp

0.84

Correlation Coefficient

Paramount Gold  Alcoa Corp

Very poor diversification

The 3 months correlation between Paramount and Alcoa is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Paramount Gold Nevada and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and Paramount Gold 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 Paramount Gold Nevada 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 Paramount Gold i.e., Paramount Gold and Alcoa Corp go up and down completely randomly.

Pair Corralation between Paramount Gold and Alcoa Corp

Considering the 90-day investment horizon Paramount Gold Nevada is expected to generate 1.88 times more return on investment than Alcoa Corp. However, Paramount Gold is 1.88 times more volatile than Alcoa Corp. It trades about 0.17 of its potential returns per unit of risk. Alcoa Corp is currently generating about 0.29 per unit of risk. If you would invest  33.00  in Paramount Gold Nevada on March 1, 2024 and sell it today you would earn a total of  19.00  from holding Paramount Gold Nevada or generate 57.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Paramount Gold Nevada  vs.  Alcoa Corp

Paramount Gold Nevada

Risk-Adjusted Performance

12 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Paramount Gold Nevada are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Paramount Gold reported solid returns over the last few months and may actually be approaching a breakup point.

Alcoa Corp

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Paramount Gold and Alcoa Corp

The main advantage of trading using opposite Paramount Gold and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Paramount Gold 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 Paramount Gold Nevada 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.