Correlation Between Alcoa Corp and Chevron Corp

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

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

Diversification Opportunities for Alcoa Corp and Chevron Corp

0.7

Correlation Coefficient

Alcoa Corp  Chevron Corp

Poor diversification

The 3 months correlation between Alcoa and Chevron is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp 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 Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Chevron Corp go up and down completely randomly.

Pair Corralation between Alcoa Corp and Chevron Corp

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 3.12 times more return on investment than Chevron Corp. However, Alcoa Corp is 3.12 times more volatile than Chevron Corp. It trades about 0.28 of its potential returns per unit of risk. Chevron Corp is currently generating about 0.33 per unit of risk. If you would invest  3,158  in Alcoa Corp on January 26, 2024 and sell it today you would earn a total of  450.00  from holding Alcoa Corp or generate 14.25% return on investment over 90 days.

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

Alcoa Corp  vs.  Chevron Corp

Alcoa Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 8 (%) 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.

Chevron Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Chevron Corp may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Alcoa Corp and Chevron Corp

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

The idea behind Alcoa Corp and Chevron 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.