Correlation Between Kaiser Aluminum and Allegheny Technologies

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

By analyzing existing cross correlation between Kaiser Aluminum and Allegheny Technologies Incorporated, you can compare the effects of market volatilities on Kaiser Aluminum and Allegheny Technologies 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 Kaiser Aluminum with a short position of Allegheny Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kaiser Aluminum and Allegheny Technologies.

Diversification Opportunities for Kaiser Aluminum and Allegheny Technologies

0.82

Correlation Coefficient

Kaiser Aluminum  Allegheny Technologies

Very poor diversification

The 3 months correlation between Kaiser and Allegheny is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Kaiser Aluminum and Allegheny Technologies Incorpo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegheny Technologies and Kaiser Aluminum 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 Kaiser Aluminum are associated (or correlated) with Allegheny Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegheny Technologies has no effect on the direction of Kaiser Aluminum i.e., Kaiser Aluminum and Allegheny Technologies go up and down completely randomly.

Pair Corralation between Kaiser Aluminum and Allegheny Technologies

Given the investment horizon of 90 days Kaiser Aluminum is expected to generate 0.86 times more return on investment than Allegheny Technologies. However, Kaiser Aluminum is 1.17 times less risky than Allegheny Technologies. It trades about 0.24 of its potential returns per unit of risk. Allegheny Technologies Incorporated is currently generating about 0.17 per unit of risk. If you would invest  7,052  in Kaiser Aluminum on February 23, 2024 and sell it today you would earn a total of  2,496  from holding Kaiser Aluminum or generate 35.39% return on investment over 90 days.

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

Kaiser Aluminum  vs.  Allegheny Technologies Incorpo

Kaiser Aluminum

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kaiser Aluminum are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady essential indicators, Kaiser Aluminum unveiled solid returns over the last few months and may actually be approaching a breakup point.

Allegheny Technologies

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allegheny Technologies Incorporated are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Allegheny Technologies demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kaiser Aluminum and Allegheny Technologies

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

The idea behind Kaiser Aluminum and Allegheny Technologies Incorporated 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.