Correlation Between AUTO TRADER and Alphabet

Can any of the company-specific risk be diversified away by investing in both AUTO TRADER and Alphabet 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 AUTO TRADER and Alphabet into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AUTO TRADER ADR and Alphabet Class A, you can compare the effects of market volatilities on AUTO TRADER and Alphabet 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 AUTO TRADER with a short position of Alphabet. Check out your portfolio center. Please also check ongoing floating volatility patterns of AUTO TRADER and Alphabet.

Diversification Opportunities for AUTO TRADER and Alphabet

-0.65

Correlation Coefficient

AUTO TRADER  Alphabet

Excellent diversification

The 3 months correlation between AUTO and Alphabet is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding AUTO TRADER ADR and Alphabet Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Class A and AUTO TRADER 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 AUTO TRADER ADR are associated (or correlated) with Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet Class A has no effect on the direction of AUTO TRADER i.e., AUTO TRADER and Alphabet go up and down completely randomly.

Pair Corralation between AUTO TRADER and Alphabet

Assuming the 90 days trading horizon AUTO TRADER ADR is expected to under-perform the Alphabet. But the stock apears to be less risky and, when comparing its historical volatility, AUTO TRADER ADR is 1.03 times less risky than Alphabet. The stock trades about -0.01 of its potential returns per unit of risk. The Alphabet Class A is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  14,105  in Alphabet Class A on September 4, 2024 and sell it today you would earn a total of  1,851  from holding Alphabet Class A or generate 13.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

AUTO TRADER ADR  vs.  Alphabet Class A

AUTO TRADER ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AUTO TRADER ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, AUTO TRADER is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Alphabet Class A

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Class A are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AUTO TRADER and Alphabet

The main advantage of trading using opposite AUTO TRADER and Alphabet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AUTO TRADER position performs unexpectedly, Alphabet 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 Alphabet will offset losses from the drop in Alphabet's long position.

The idea behind AUTO TRADER ADR and Alphabet Class A 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 the Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.