Correlation Between Amazon and Alcoa Corp

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Can any of the company-specific risk be diversified away by investing in both Amazon 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 Amazon and Alcoa Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Alcoa Corp, you can compare the effects of market volatilities on Amazon 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 Amazon with a short position of Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Alcoa Corp.

Diversification Opportunities for Amazon and Alcoa Corp

-0.05
  Correlation Coefficient

Good diversification

The 3 months correlation between Amazon and Alcoa is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and Amazon 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 Amazon 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 Amazon i.e., Amazon and Alcoa Corp go up and down completely randomly.

Pair Corralation between Amazon and Alcoa Corp

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the Alcoa Corp. But the stock apears to be less risky and, when comparing its historical volatility, Amazon Inc is 1.49 times less risky than Alcoa Corp. The stock trades about -0.13 of its potential returns per unit of risk. The Alcoa Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,779  in Alcoa Corp on September 4, 2022 and sell it today you would earn a total of  260.00  from holding Alcoa Corp or generate 5.44% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  Alcoa Corp

 Performance (%) 
       Timeline  
Amazon Inc 
Amazon Performance
0 of 100
Over the last 90 days Amazon Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2023. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Amazon Price Channel

Alcoa Corp 
Alcoa Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Alcoa Corp may actually be approaching a critical reversion point that can send shares even higher in January 2023.

Alcoa Price Channel

Amazon and Alcoa Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and Alcoa Corp

The main advantage of trading using opposite Amazon and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon 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.
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The idea behind Amazon Inc 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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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.

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