Correlation Between Alphabet and US Financial

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

By analyzing existing cross correlation between Alphabet Inc CDR and US Financial 15, you can compare the effects of market volatilities on Alphabet and US Financial 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 Alphabet with a short position of US Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and US Financial.

Diversification Opportunities for Alphabet and US Financial

0.79

Correlation Coefficient

Alphabet  US Financial

Poor diversification

The 3 months correlation between Alphabet and FTU-PB is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc CDR and US Financial 15 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Financial 15 and Alphabet 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 Alphabet Inc CDR are associated (or correlated) with US Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Financial 15 has no effect on the direction of Alphabet i.e., Alphabet and US Financial go up and down completely randomly.

Pair Corralation between Alphabet and US Financial

Assuming the 90 days trading horizon Alphabet is expected to generate 1.62 times less return on investment than US Financial. But when comparing it to its historical volatility, Alphabet Inc CDR is 1.29 times less risky than US Financial. It trades about 0.11 of its potential returns per unit of risk. US Financial 15 is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  657.00  in US Financial 15 on September 5, 2024 and sell it today you would earn a total of  115.00  from holding US Financial 15 or generate 17.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Alphabet Inc CDR  vs.  US Financial 15

Alphabet CDR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc CDR are ranked lower than 8 (%) 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.

US Financial 15

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in US Financial 15 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, US Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and US Financial

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

The idea behind Alphabet Inc CDR and US Financial 15 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.