Correlation Between Alcoa Corp and First Majestic

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

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

Diversification Opportunities for Alcoa Corp and First Majestic

0.93

Correlation Coefficient

Alcoa Corp  First Majestic

Almost no diversification

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

Pair Corralation between Alcoa Corp and First Majestic

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 1.53 times less return on investment than First Majestic. But when comparing it to its historical volatility, Alcoa Corp is 1.3 times less risky than First Majestic. It trades about 0.12 of its potential returns per unit of risk. First Majestic Silver is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  481.00  in First Majestic Silver on January 24, 2024 and sell it today you would earn a total of  174.00  from holding First Majestic Silver or generate 36.17% return on investment over 90 days.

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

Alcoa Corp  vs.  First Majestic Silver

Alcoa Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 9 (%) 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.

First Majestic Silver

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Alcoa Corp and First Majestic

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

The idea behind Alcoa Corp and First Majestic Silver 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.