Correlation Between Columbia Limited and Alcoa Corp

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

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

Diversification Opportunities for Columbia Limited and Alcoa Corp

0.34

Correlation Coefficient

Columbia Limited  Alcoa Corp

Weak diversification

The 3 months correlation between Columbia and Alcoa is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Columbia Limited Duration and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and Columbia Limited 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 Columbia Limited Duration 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 Columbia Limited i.e., Columbia Limited and Alcoa Corp go up and down completely randomly.

Pair Corralation between Columbia Limited and Alcoa Corp

Assuming the 90 days horizon Columbia Limited Duration is expected to under-perform the Alcoa Corp. But the mutual fund apears to be less risky and, when comparing its historical volatility, Columbia Limited Duration is 14.46 times less risky than Alcoa Corp. The mutual fund trades about -0.17 of its potential returns per unit of risk. The Alcoa Corp is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  3,135  in Alcoa Corp on January 20, 2024 and sell it today you would earn a total of  412.00  from holding Alcoa Corp or generate 13.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Columbia Limited Duration  vs.  Alcoa Corp

Columbia Limited Duration

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Columbia Limited Duration has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Columbia Limited is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Columbia Limited and Alcoa Corp

The main advantage of trading using opposite Columbia Limited and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Columbia Limited 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.

The idea behind Columbia Limited Duration and Alcoa Corp 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.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.