Correlation Between Microsoft Corp and Alcoa Corp

Specify exactly 2 symbols:
Can any of the company-specific risk be diversified away by investing in both Microsoft Corp 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 Microsoft Corp and Alcoa Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft Corp and Alcoa Corp, you can compare the effects of market volatilities on Microsoft Corp 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 Microsoft Corp with a short position of Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft Corp and Alcoa Corp.

Diversification Opportunities for Microsoft Corp and Alcoa Corp

0.16
  Correlation Coefficient

Average diversification

The 3 months correlation between Microsoft and Alcoa is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and Microsoft 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 Microsoft Corp 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 Microsoft Corp i.e., Microsoft Corp and Alcoa Corp go up and down completely randomly.

Pair Corralation between Microsoft Corp and Alcoa Corp

Given the investment horizon of 90 days Microsoft Corp is expected to generate 1.86 times less return on investment than Alcoa Corp. But when comparing it to its historical volatility, Microsoft Corp is 1.21 times less risky than Alcoa Corp. It trades about 0.32 of its potential returns per unit of risk. Alcoa Corp is currently generating about 0.48 of returns per unit of risk over similar time horizon. If you would invest  4,073  in Alcoa Corp on May 15, 2022 and sell it today you would earn a total of  1,203  from holding Alcoa Corp or generate 29.54% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Microsoft Corp  vs.  Alcoa Corp

 Performance (%) 
       Timeline  
Microsoft Corp 
Microsoft Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Microsoft Corp may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Microsoft 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 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

Microsoft Corp and Alcoa Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft Corp and Alcoa Corp

The main advantage of trading using opposite Microsoft Corp and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft Corp 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.

Microsoft Corp

Pair trading matchups for Microsoft Corp

Universal Health vs. Microsoft Corp
Semiconductor Bear vs. Microsoft Corp
Nike vs. Microsoft Corp
Essential Properties vs. Microsoft Corp
Ark Innovation vs. Microsoft Corp
Cto Realty vs. Microsoft Corp
Prog Hldgs vs. Microsoft Corp
Horizon Therapeutics vs. Microsoft Corp
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Microsoft Corp as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Microsoft Corp's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Microsoft Corp's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Microsoft Corp.
The idea behind Microsoft Corp 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.

Other Complementary Tools

Insider Screener
Find insiders across different sectors to evaluate their impact on performance
Go
Crypto Correlations
Use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins
Go
Money Managers
Screen money managers from public funds and ETFs managed around the world
Go
Theme Ratings
Determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance
Go
Correlation Analysis
Reduce portfolio risk simply by holding instruments which are not perfectly correlated
Go
CEO Directory
Screen CEOs from public companies around the world
Go
Bond Analysis
Evaluate and analyze corporate bonds as a potential investment for your portfolios.
Go
Pattern Recognition
Use different Pattern Recognition models to time the market across multiple global exchanges
Go
Portfolio Center
All portfolio management and optimization tools to improve performance of your portfolios
Go
Portfolio File Import
Quickly import all of your third-party portfolios from your local drive in csv format
Go