Correlation Between Alcoa Corp and McKesson

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

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

Diversification Opportunities for Alcoa Corp and McKesson

0.64

Correlation Coefficient

Alcoa Corp  McKesson

Poor diversification

The 3 months correlation between Alcoa and McKesson is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and McKesson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McKesson 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 McKesson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McKesson has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and McKesson go up and down completely randomly.

Pair Corralation between Alcoa Corp and McKesson

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 3.1 times more return on investment than McKesson. However, Alcoa Corp is 3.1 times more volatile than McKesson. It trades about 0.03 of its potential returns per unit of risk. McKesson is currently generating about 0.01 per unit of risk. If you would invest  3,634  in Alcoa Corp on February 6, 2024 and sell it today you would earn a total of  43.00  from holding Alcoa Corp or generate 1.18% 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.  McKesson

Alcoa Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 13 (%) 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.

McKesson

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in McKesson are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, McKesson is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Alcoa Corp and McKesson

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

The idea behind Alcoa Corp and McKesson 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.