Correlation Between AAON and Alcoa Corp
Can any of the company-specific risk be diversified away by investing in both AAON and Alcoa Corp 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 AAON and Alcoa Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AAON Inc and Alcoa Corp, you can compare the effects of market volatilities on AAON and Alcoa Corp 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 AAON with a short position of Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of AAON and Alcoa Corp.
Diversification Opportunities for AAON and Alcoa Corp
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between AAON and Alcoa is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding AAON Inc and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and AAON 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 AAON Inc are associated (or correlated) with Alcoa Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alcoa Corp has no effect on the direction of AAON i.e., AAON and Alcoa Corp go up and down completely randomly.
Pair Corralation between AAON and Alcoa Corp
Given the investment horizon of 90 days AAON Inc is expected to generate 0.7 times more return on investment than Alcoa Corp. However, AAON Inc is 1.42 times less risky than Alcoa Corp. It trades about 0.2 of its potential returns per unit of risk. Alcoa Corp is currently generating about 0.1 per unit of risk. If you would invest 6,987 in AAON Inc on January 26, 2024 and sell it today you would earn a total of 1,980 from holding AAON Inc or generate 28.34% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
AAON Inc vs. Alcoa Corp
Performance |
Timeline |
AAON Inc |
Alcoa Corp |
AAON and Alcoa Corp Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with AAON and Alcoa Corp
The main advantage of trading using opposite AAON and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AAON position performs unexpectedly, Alcoa Corp 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 Alcoa Corp will offset losses from the drop in Alcoa Corp's long position.AAON vs. Johnson Controls International | AAON vs. Masco | AAON vs. Carlisle Companies Incorporated | AAON vs. Fortune Brands Innovations |
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Check out your portfolio center.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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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