Correlation Between Align Technology and Alphabet

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

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

Diversification Opportunities for Align Technology and Alphabet

0.22

Correlation Coefficient

Align Technology  Alphabet

Modest diversification

The 3 months correlation between Align and Alphabet is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Align Technology and Alphabet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet and Align Technology 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 Align Technology 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 has no effect on the direction of Align Technology i.e., Align Technology and Alphabet go up and down completely randomly.

Pair Corralation between Align Technology and Alphabet

Assuming the 90 days trading horizon Align Technology is expected to generate 2.3 times less return on investment than Alphabet. But when comparing it to its historical volatility, Align Technology is 1.16 times less risky than Alphabet. It trades about 0.13 of its potential returns per unit of risk. Alphabet is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  7,287  in Alphabet on September 14, 2024 and sell it today you would earn a total of  2,420  from holding Alphabet or generate 33.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Align Technology  vs.  Alphabet

Align Technology

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Align Technology are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Align Technology sustained solid returns over the last few months and may actually be approaching a breakup point.

Alphabet

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Alphabet sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Align Technology and Alphabet

The main advantage of trading using opposite Align Technology and Alphabet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Align Technology 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 Align Technology and Alphabet 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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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.