Correlation Between Alcoa Corp and Clean Energy

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

Diversification Opportunities for Alcoa Corp and Clean Energy

0.61
  Correlation Coefficient

Poor diversification

The 3 months correlation between Alcoa and Clean is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Clean Energy Fuels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clean Energy Fuels 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 Clean Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clean Energy Fuels has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Clean Energy go up and down completely randomly.

Pair Corralation between Alcoa Corp and Clean Energy

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the Clean Energy. But the stock apears to be less risky and, when comparing its historical volatility, Alcoa Corp is 1.18 times less risky than Clean Energy. The stock trades about -0.02 of its potential returns per unit of risk. The Clean Energy Fuels is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  565.00  in Clean Energy Fuels on September 1, 2022 and sell it today you would earn a total of  111.00  from holding Clean Energy Fuels or generate 19.65% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Alcoa Corp  vs.  Clean Energy Fuels

 Performance (%) 
       Timeline  
Alcoa Corp 
Alcoa Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Alcoa Corp may actually be approaching a critical reversion point that can send shares even higher in December 2022.

Alcoa Price Channel

Clean Energy Fuels 
Clean Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Clean Energy Fuels are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Clean Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Clean Price Channel

Alcoa Corp and Clean Energy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alcoa Corp and Clean Energy

The main advantage of trading using opposite Alcoa Corp and Clean Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa Corp position performs unexpectedly, Clean Energy 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 Clean Energy will offset losses from the drop in Clean Energy's long position.
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The idea behind Alcoa Corp and Clean Energy Fuels 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 Price Transformation module to use Price Transformation models to analyze depth of different equity instruments across global markets.

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