Correlation Between Alcoa Corp and Southern

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

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

Diversification Opportunities for Alcoa Corp and Southern

0.78

Correlation Coefficient

Alcoa Corp  Southern

Poor diversification

The 3 months correlation between Alcoa and Southern is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Southern Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern 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 Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Southern go up and down completely randomly.

Pair Corralation between Alcoa Corp and Southern

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 2.92 times more return on investment than Southern. However, Alcoa Corp is 2.92 times more volatile than Southern Company. It trades about 0.01 of its potential returns per unit of risk. Southern Company is currently generating about -0.01 per unit of risk. If you would invest  3,752  in Alcoa Corp on January 17, 2024 and sell it today you would lose (95.00) from holding Alcoa Corp or give up 2.53% of portfolio value over 90 days.

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

Alcoa Corp  vs.  Southern Company

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 fragile basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Southern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Southern is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Alcoa Corp and Southern

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

The idea behind Alcoa Corp and Southern Company 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.