Correlation Between DFDS AS and Alcoa Corp
Can any of the company-specific risk be diversified away by investing in both DFDS AS 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 DFDS AS and Alcoa Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DFDS AS and Alcoa Corp, you can compare the effects of market volatilities on DFDS AS 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 DFDS AS with a short position of Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of DFDS AS and Alcoa Corp.
Diversification Opportunities for DFDS AS and Alcoa Corp
-0.43 | Correlation Coefficient |
Very good diversification
The 3 months correlation between DFDS and Alcoa is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding DFDS AS and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and DFDS AS 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 DFDS AS 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 DFDS AS i.e., DFDS AS and Alcoa Corp go up and down completely randomly.
Pair Corralation between DFDS AS and Alcoa Corp
Assuming the 90 days trading horizon DFDS AS is expected to generate 20.78 times less return on investment than Alcoa Corp. But when comparing it to its historical volatility, DFDS AS is 2.25 times less risky than Alcoa Corp. It trades about 0.04 of its potential returns per unit of risk. Alcoa Corp is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest 2,525 in Alcoa Corp on January 25, 2024 and sell it today you would earn a total of 1,081 from holding Alcoa Corp or generate 42.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.12% |
| Values | Daily Returns |
DFDS AS vs. Alcoa Corp
Performance |
| Timeline |
| DFDS AS |
| Alcoa Corp |
DFDS AS and Alcoa Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with DFDS AS and Alcoa Corp
The main advantage of trading using opposite DFDS AS and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DFDS AS 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 DFDS AS 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.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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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