Correlation Between Alcoa Corp and Shift4 Payments

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Can any of the company-specific risk be diversified away by investing in both Alcoa Corp and Shift4 Payments 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 Shift4 Payments into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alcoa Corp and Shift4 Payments, you can compare the effects of market volatilities on Alcoa Corp and Shift4 Payments 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 Shift4 Payments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa Corp and Shift4 Payments.

Diversification Opportunities for Alcoa Corp and Shift4 Payments

0.83
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Alcoa and Shift4 is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Shift4 Payments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shift4 Payments 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 Shift4 Payments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shift4 Payments has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Shift4 Payments go up and down completely randomly.

Pair Corralation between Alcoa Corp and Shift4 Payments

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the Shift4 Payments. But the stock apears to be less risky and, when comparing its historical volatility, Alcoa Corp is 1.23 times less risky than Shift4 Payments. The stock trades about -0.04 of its potential returns per unit of risk. The Shift4 Payments is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  5,493  in Shift4 Payments on May 14, 2022 and sell it today you would lose (553.00)  from holding Shift4 Payments or give up 10.07% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Alcoa Corp  vs.  Shift4 Payments

 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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Alcoa Price Channel

Shift4 Payments 
Shift4 Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Shift4 Payments are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Shift4 Payments reported solid returns over the last few months and may actually be approaching a breakup point.

Shift4 Price Channel

Alcoa Corp and Shift4 Payments Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alcoa Corp and Shift4 Payments

The main advantage of trading using opposite Alcoa Corp and Shift4 Payments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa Corp position performs unexpectedly, Shift4 Payments 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 Shift4 Payments will offset losses from the drop in Shift4 Payments' long position.
The idea behind Alcoa Corp and Shift4 Payments 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.
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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