Correlation Between Alcoa Corp and MAG Silver

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

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

Diversification Opportunities for Alcoa Corp and MAG Silver

0.94

Correlation Coefficient

Alcoa Corp  MAG Silver

Almost no diversification

The 3 months correlation between Alcoa and MAG is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and MAG Silver Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MAG Silver 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 MAG Silver. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MAG Silver Corp has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and MAG Silver go up and down completely randomly.

Pair Corralation between Alcoa Corp and MAG Silver

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 3.27 times less return on investment than MAG Silver. But when comparing it to its historical volatility, Alcoa Corp is 1.65 times less risky than MAG Silver. It trades about 0.18 of its potential returns per unit of risk. MAG Silver Corp is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  988.00  in MAG Silver Corp on January 27, 2024 and sell it today you would earn a total of  309.00  from holding MAG Silver Corp or generate 31.28% return on investment over 90 days.

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

Alcoa Corp  vs.  MAG Silver Corp

Alcoa Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

MAG Silver Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MAG Silver Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, MAG Silver reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alcoa Corp and MAG Silver

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

The idea behind Alcoa Corp and MAG Silver 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.