Correlation Between Danske Andelskassers and Alcoa Corp

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

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

Diversification Opportunities for Danske Andelskassers and Alcoa Corp

0.5

Correlation Coefficient

Danske Andelskassers  Alcoa Corp

Very weak diversification

The 3 months correlation between Danske and Alcoa is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Danske Andelskassers Bank and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and Danske Andelskassers 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 Danske Andelskassers Bank 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 Danske Andelskassers i.e., Danske Andelskassers and Alcoa Corp go up and down completely randomly.

Pair Corralation between Danske Andelskassers and Alcoa Corp

Assuming the 90 days trading horizon Danske Andelskassers is expected to generate 1.32 times less return on investment than Alcoa Corp. But when comparing it to its historical volatility, Danske Andelskassers Bank is 1.18 times less risky than Alcoa Corp. It trades about 0.25 of its potential returns per unit of risk. Alcoa Corp is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  3,158  in Alcoa Corp on January 26, 2024 and sell it today you would earn a total of  450.00  from holding Alcoa Corp or generate 14.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Danske Andelskassers Bank  vs.  Alcoa Corp

Danske Andelskassers Bank

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Danske Andelskassers Bank are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental drivers, Danske Andelskassers displayed solid returns over the last few months and may actually be approaching a breakup point.

Alcoa Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Danske Andelskassers and Alcoa Corp

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

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.