Correlation Between Alcoa Corp and Microsoft Corp

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

Diversification Opportunities for Alcoa Corp and Microsoft Corp

0.21
  Correlation Coefficient

Modest diversification

The 3 months correlation between Alcoa and Microsoft is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Microsoft Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft Corp 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 Microsoft Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft Corp has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Microsoft Corp go up and down completely randomly.

Pair Corralation between Alcoa Corp and Microsoft Corp

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 2.09 times more return on investment than Microsoft Corp. However, Alcoa Corp is 2.09 times more volatile than Microsoft Corp. It trades about 0.04 of its potential returns per unit of risk. Microsoft Corp is currently generating about 0.01 per unit of risk. If you would invest  4,312  in Alcoa Corp on May 12, 2022 and sell it today you would earn a total of  983.00  from holding Alcoa Corp or generate 22.8% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Alcoa Corp  vs.  Microsoft Corp

 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 newest stock price disturbance, may contribute to short-term losses for the investors.

Alcoa Price Channel

Microsoft Corp 
Microsoft Performance
8 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Microsoft Corp unveiled solid returns over the last few months and may actually be approaching a breakup point.

Microsoft Price Channel

Alcoa Corp and Microsoft Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alcoa Corp and Microsoft Corp

The main advantage of trading using opposite Alcoa Corp and Microsoft Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa Corp position performs unexpectedly, Microsoft 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 Microsoft Corp will offset losses from the drop in Microsoft Corp's long position.
The idea behind Alcoa Corp and Microsoft 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.
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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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