Correlation Between Alcoa Corp and Oversea Chinese

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

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

Diversification Opportunities for Alcoa Corp and Oversea Chinese

-0.22

Correlation Coefficient

Alcoa Corp  Oversea Chinese

Very good diversification

The 3 months correlation between Alcoa and Oversea is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Oversea Chinese Banking in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oversea Chinese Banking 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 Oversea Chinese. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oversea Chinese Banking has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Oversea Chinese go up and down completely randomly.

Pair Corralation between Alcoa Corp and Oversea Chinese

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the Oversea Chinese. In addition to that, Alcoa Corp is 1.88 times more volatile than Oversea Chinese Banking. It trades about -0.01 of its total potential returns per unit of risk. Oversea Chinese Banking is currently generating about 0.04 per unit of volatility. If you would invest  772.00  in Oversea Chinese Banking on January 25, 2024 and sell it today you would earn a total of  220.00  from holding Oversea Chinese Banking or generate 28.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.51%
Values	Daily Returns

Alcoa Corp  vs.  Oversea Chinese Banking

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.

Oversea Chinese Banking

Risk-Adjusted Performance

5 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Oversea Chinese Banking are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical indicators, Oversea Chinese may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Alcoa Corp and Oversea Chinese

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

The idea behind Alcoa Corp and Oversea Chinese Banking 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.