Alcoa stock (NYSE: AA) dropped almost 10% in the last one month and currently trades close to $36 per share. The primary reason for this drop has been news from China. With an aim to combat the rising price of finished goods at its factories (and shrinking profit margins for its producers), China’s National Food and Strategic Reserves Administration announced that it will release metal in batches in the near future. Copper and aluminum held in government strategic stockpiles were specifically named as targets of the action. The market expects China to release state reserves of these commodities while also possibly trimming long positions and cracking down on speculative activity. China’s announcement saw volatility in global aluminum prices which led to a drop in Alcoa’s stock price.
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 3.5% in the next one-month (21 trading days) period after experiencing a 10% decline over the previous one-month (21 trading days) period. Also, there is a 56% chance that the stock will give positive returns over the next one-month period.
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 Alcoa 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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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 2.3 percent with a 49% probability of a positive returns.
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 2.3% 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 3.5% 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 5 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 understandably 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 5 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 X stock may have moved a lot, 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.