Correlation Between Alcoa Corp and Unity Software

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

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

Diversification Opportunities for Alcoa Corp and Unity Software

-0.7

Correlation Coefficient

Alcoa Corp  Unity Software

Excellent diversification

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

Pair Corralation between Alcoa Corp and Unity Software

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 0.67 times more return on investment than Unity Software. However, Alcoa Corp is 1.5 times less risky than Unity Software. It trades about -0.02 of its potential returns per unit of risk. Unity Software is currently generating about -0.01 per unit of risk. If you would invest  6,634  in Alcoa Corp on January 19, 2024 and sell it today you would lose (3,087) from holding Alcoa Corp or give up 46.53% of portfolio value over 90 days.

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

Alcoa Corp  vs.  Unity Software

Alcoa Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 11 (%) 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.

Unity Software

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Unity Software has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in May 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Alcoa Corp and Unity Software

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

The idea behind Alcoa Corp and Unity Software 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.