Correlation Between Kaiser Aluminum and Noranda Aluminum

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

By analyzing existing cross correlation between Kaiser Aluminum and Noranda Aluminum Holding, you can compare the effects of market volatilities on Kaiser Aluminum and Noranda Aluminum 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 Noranda Aluminum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kaiser Aluminum and Noranda Aluminum.

Diversification Opportunities for Kaiser Aluminum and Noranda Aluminum

0.0

Correlation Coefficient

Kaiser Aluminum  Noranda Aluminum

Pay attention - limited upside

The 3 months correlation between Kaiser and Noranda is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Kaiser Aluminum and Noranda Aluminum Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Noranda Aluminum Holding 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 Noranda Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Noranda Aluminum Holding has no effect on the direction of Kaiser Aluminum i.e., Kaiser Aluminum and Noranda Aluminum go up and down completely randomly.

Pair Corralation between Kaiser Aluminum and Noranda Aluminum

Given the investment horizon of 90 days Kaiser Aluminum is expected to generate 0.38 times more return on investment than Noranda Aluminum. However, Kaiser Aluminum is 2.66 times less risky than Noranda Aluminum. It trades about 0.02 of its potential returns per unit of risk. Noranda Aluminum Holding is currently generating about -0.08 per unit of risk. If you would invest  9,129  in Kaiser Aluminum on January 29, 2024 and sell it today you would earn a total of  363.00  from holding Kaiser Aluminum or generate 3.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	35.37%
Values	Daily Returns

Kaiser Aluminum  vs.  Noranda Aluminum Holding

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 weak essential indicators, Kaiser Aluminum unveiled solid returns over the last few months and may actually be approaching a breakup point.

Noranda Aluminum Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Noranda Aluminum Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Noranda Aluminum is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Kaiser Aluminum and Noranda Aluminum

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

The idea behind Kaiser Aluminum and Noranda Aluminum Holding 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.