Correlation Between Micro Focus and Alcoa Corp

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

Diversification Opportunities for Micro Focus and Alcoa Corp

0.93
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Micro and Alcoa is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Micro Focus Intl and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and Micro Focus 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 Micro Focus Intl are associated (or correlated) with Alcoa Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alcoa Corp has no effect on the direction of Micro Focus i.e., Micro Focus and Alcoa Corp go up and down completely randomly.

Pair Corralation between Micro Focus and Alcoa Corp

Given the investment horizon of 90 days Micro Focus is expected to generate 4.04 times less return on investment than Alcoa Corp. But when comparing it to its historical volatility, Micro Focus Intl is 1.07 times less risky than Alcoa Corp. It trades about 0.03 of its potential returns per unit of risk. Alcoa Corp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,221  in Alcoa Corp on May 13, 2022 and sell it today you would earn a total of  4,213  from holding Alcoa Corp or generate 345.05% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Micro Focus Intl  vs.  Alcoa Corp

 Performance (%) 
       Timeline  
Micro Focus Intl 
Micro Performance
0 of 100
Over the last 90 days Micro Focus Intl has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in September 2022. The recent disarray may also be a sign of long period up-swing for the firm insiders.

Micro Price Channel

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

Alcoa Price Channel

Micro Focus and Alcoa Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Micro Focus and Alcoa Corp

The main advantage of trading using opposite Micro Focus and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Micro Focus position performs unexpectedly, Alcoa 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 Alcoa Corp will offset losses from the drop in Alcoa Corp's long position.
The idea behind Micro Focus Intl and Alcoa 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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