Correlation Between Alphabet and China Minmetals

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

By analyzing existing cross correlation between Alphabet Inc Class C and China Minmetals Rare, you can compare the effects of market volatilities on Alphabet and China Minmetals 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 China Minmetals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and China Minmetals.

Diversification Opportunities for Alphabet and China Minmetals

0.81

Correlation Coefficient

Alphabet  China Minmetals

Very poor diversification

The 3 months correlation between Alphabet and China is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and China Minmetals Rare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Minmetals Rare 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 Class C are associated (or correlated) with China Minmetals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Minmetals Rare has no effect on the direction of Alphabet i.e., Alphabet and China Minmetals go up and down completely randomly.

Pair Corralation between Alphabet and China Minmetals

Given the investment horizon of 90 days Alphabet is expected to generate 4.92 times less return on investment than China Minmetals. But when comparing it to its historical volatility, Alphabet Inc Class C is 2.44 times less risky than China Minmetals. It trades about 0.09 of its potential returns per unit of risk. China Minmetals Rare is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,188  in China Minmetals Rare on August 31, 2024 and sell it today you would earn a total of  852.00  from holding China Minmetals Rare or generate 38.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	90.48%
Values	Daily Returns

Alphabet Inc Class C  vs.  China Minmetals Rare

Alphabet Class C

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Alphabet may actually be approaching a critical reversion point that can send shares even higher in December 2024.

China Minmetals Rare

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Minmetals Rare are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Minmetals sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and China Minmetals

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

The idea behind Alphabet Inc Class C and China Minmetals Rare 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.