Correlation Between National Australia and Alcoa
Can any of the company-specific risk be diversified away by investing in both National Australia and Alcoa 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 National Australia and Alcoa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between National Australia Bank and Alcoa, you can compare the effects of market volatilities on National Australia and Alcoa 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 National Australia with a short position of Alcoa. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Australia and Alcoa.
Diversification Opportunities for National Australia and Alcoa
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between National and Alcoa is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding National Australia Bank and Alcoa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa and National Australia 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 National Australia Bank are associated (or correlated) with Alcoa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alcoa has no effect on the direction of National Australia i.e., National Australia and Alcoa go up and down completely randomly.
Pair Corralation between National Australia and Alcoa
Assuming the 90 days trading horizon National Australia is expected to generate 70.41 times less return on investment than Alcoa. But when comparing it to its historical volatility, National Australia Bank is 17.52 times less risky than Alcoa. It trades about 0.05 of its potential returns per unit of risk. Alcoa is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 4,666 in Alcoa on September 11, 2025 and sell it today you would earn a total of 1,994 from holding Alcoa or generate 42.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
National Australia Bank vs. Alcoa
Performance |
| Timeline |
| National Australia Bank |
| Alcoa |
National Australia and Alcoa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with National Australia and Alcoa
The main advantage of trading using opposite National Australia and Alcoa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Australia position performs unexpectedly, Alcoa 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 will offset losses from the drop in Alcoa's long position.The idea behind National Australia Bank and Alcoa 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.
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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 the Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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