Correlation Between E L and Alphabet

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

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

Diversification Opportunities for E L and Alphabet

0.61

Correlation Coefficient

E L  Alphabet

Poor diversification

The 3 months correlation between ELF and Alphabet is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding E L Financial Corp and Alphabet Inc CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet CDR and E L 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 E L Financial Corp 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 CDR has no effect on the direction of E L i.e., E L and Alphabet go up and down completely randomly.

Pair Corralation between E L and Alphabet

Assuming the 90 days trading horizon E L Financial Corp is expected to generate 0.88 times more return on investment than Alphabet. However, E L Financial Corp is 1.14 times less risky than Alphabet. It trades about 0.1 of its potential returns per unit of risk. Alphabet Inc CDR is currently generating about 0.08 per unit of risk. If you would invest  136,109  in E L Financial Corp on September 3, 2024 and sell it today you would earn a total of  11,391  from holding E L Financial Corp or generate 8.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

E L Financial Corp  vs.  Alphabet Inc CDR

E L Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in E L Financial Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, E L may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Alphabet CDR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc CDR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, Alphabet may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with E L and Alphabet

The main advantage of trading using opposite E L and Alphabet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if E L 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 E L Financial Corp and Alphabet Inc CDR 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.