Alcoa stock (NYSE: AA) dropped more than 10% in just the last one week and currently trades at little less than $37. This drop was in line with an overall bearish sentiment for metals during the week. This was driven by two primary factors – China and the U.S. China stepped up its fight against soaring commodity prices with a warning of zero tolerance for monopoly and hoarding. China primary aluminum production reached a record high in April 2021, marking a rise of 2.3% m-o-m and 12.4% y-o-y. This was in line with rising demand and expectations of more stimulus measures, which led to a commodity price rally, before Chinese authorities intervened last week. Secondly, U.S. President Biden’s spending plan is apparently being scaled back from $2.25 trillion to $1.7 trillion after facing opposition from Republicans. Most of the cuts will include the most important parts for metals consumption, like broadband, roads, and bridges. These two important factors from the U.S. and China has led to a pull back in commodity prices. Accordingly, global aluminum prices fell 4% in the last one week, which led to Alcoa stock dropping more than 10%.
But will AA stock continue its downward trajectory over the coming weeks, or is a recovery in the stock more likely? According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price data for the last ten years, returns for AA stock average close to 5% in the next one-month (21 trading days) period after experiencing a 10% decline over the previous one-week (five trading days) period. Notably, though, the stock is likely to outperform the S&P500 over the next one month, with an expected return which would be 3% higher compared to the S&P500.
But how would these numbers change if you are interested in holding AA stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning to test AA stock chances of a rise after a fall and vice versa. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!
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- What’s Behind The Recent Surge In Alcoa Stock?
- Alcoa Stock Above $50 – What’s Behind This Surge?
- Aluminum Price Nearing $3,000 – What’s The Impact On Alcoa Stock?
MACHINE LEARNING ENGINE – try it yourself:
IF AA stock moved by -5% over five trading days, THEN over the next 21 trading days, AA stock moves an average of 2.4 percent, which implies a return which is 1% higher than that of the S&P500.
More importantly, there is 50% probability of a positive return over the next 21 trading days and 44% probability of a positive excess return after a -5% change over five trading days.
Some Fun Scenarios, FAQs & Making Sense of AA Stock Movements:
Question 1: Is the average return for Alcoa stock higher after a drop?
Consider two situations,
Case 1: Alcoa stock drops by -5% or more in a week
Case 2: Alcoa stock rises by 5% or more in a week
Is the average return for Alcoa stock higher over the subsequent month after Case 1 or Case 2?
AA stock fares better after Case 2, with an average return of 2.4% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 3.6% for Case 2.
In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.
Try the Trefis machine learning engine above to see for yourself how Alcoa stock is likely to behave after any specific gain or loss over a period.
Question 2: Does patience pay?
If you buy and hold Alcoa stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.
Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!
For AA stock, the returns over the next N days after a -5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:
Question 3: What about the average return after a rise if you wait for a while?
The average return after a rise is generally lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although AA stock appears to be an exception to this general observation.
AA’s returns over the next N days after a 5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:
It’s pretty powerful to test the trend for yourself for Alcoa stock by changing the inputs in the charts above.
While AA stock may have moved, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Compass Minerals vs Southwest Gas shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.