Correlation Between Alcoa Corp and Build-A-Bear Workshop

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

Diversification Opportunities for Alcoa Corp and Build-A-Bear Workshop

0.5
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Alcoa and Build-A-Bear is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Build-A-Bear Workshop in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Build-A-Bear Workshop and Alcoa Corp 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 Alcoa Corp are associated (or correlated) with Build-A-Bear Workshop. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Build-A-Bear Workshop has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Build-A-Bear Workshop go up and down completely randomly.

Pair Corralation between Alcoa Corp and Build-A-Bear Workshop

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 2.86 times less return on investment than Build-A-Bear Workshop. But when comparing it to its historical volatility, Alcoa Corp is 1.26 times less risky than Build-A-Bear Workshop. It trades about 0.14 of its potential returns per unit of risk. Build-A-Bear Workshop is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  1,764  in Build-A-Bear Workshop on September 8, 2022 and sell it today you would earn a total of  753.00  from holding Build-A-Bear Workshop or generate 42.69% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Alcoa Corp  vs.  Build-A-Bear Workshop

 Performance (%) 
       Timeline  
Alcoa Corp 
Alcoa Performance
0 of 100
Over the last 90 days Alcoa Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Alcoa Corp is not utilizing all of its potentials. The new stock price disturbance, may contribute to short-term losses for the investors.

Alcoa Price Channel

Build-A-Bear Workshop 
Build-A-Bear Performance
21 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Build-A-Bear Workshop are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental drivers, Build-A-Bear Workshop showed solid returns over the last few months and may actually be approaching a breakup point.

Build-A-Bear Price Channel

Alcoa Corp and Build-A-Bear Workshop Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alcoa Corp and Build-A-Bear Workshop

The main advantage of trading using opposite Alcoa Corp and Build-A-Bear Workshop positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa Corp position performs unexpectedly, Build-A-Bear Workshop 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 Build-A-Bear Workshop will offset losses from the drop in Build-A-Bear Workshop's long position.
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The idea behind Alcoa Corp and Build-A-Bear Workshop 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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