Correlation Between Alcoa Corp and Arcelormittal ADR

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

Diversification Opportunities for Alcoa Corp and Arcelormittal ADR

0.95
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Alcoa and Arcelormittal is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Arcelormittal ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arcelormittal ADR 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 Arcelormittal ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arcelormittal ADR has no effect on the direction of Alcoa Corp i.e., Alcoa Corp and Arcelormittal ADR go up and down completely randomly.

Pair Corralation between Alcoa Corp and Arcelormittal ADR

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 0.96 times more return on investment than Arcelormittal ADR. However, Alcoa Corp is 1.04 times less risky than Arcelormittal ADR. It trades about 0.43 of its potential returns per unit of risk. Arcelormittal ADR is currently generating about 0.31 per unit of risk. If you would invest  4,297  in Alcoa Corp on May 16, 2022 and sell it today you would earn a total of  979.00  from holding Alcoa Corp or generate 22.78% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Alcoa Corp  vs.  Arcelormittal ADR

 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 sluggish 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

Arcelormittal ADR 
Arcelormittal Performance
0 of 100
Over the last 90 days Arcelormittal ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Arcelormittal Price Channel

Alcoa Corp and Arcelormittal ADR Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alcoa Corp and Arcelormittal ADR

The main advantage of trading using opposite Alcoa Corp and Arcelormittal ADR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa Corp position performs unexpectedly, Arcelormittal ADR 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 Arcelormittal ADR will offset losses from the drop in Arcelormittal ADR's long position.
The idea behind Alcoa Corp and Arcelormittal ADR 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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