Correlation Between Alphabet and Wuxi Chemical

Can any of the company-specific risk be diversified away by investing in both Alphabet and Wuxi Chemical 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 Wuxi Chemical 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 Wuxi Chemical Equipment, you can compare the effects of market volatilities on Alphabet and Wuxi Chemical 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 Wuxi Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and Wuxi Chemical.

Diversification Opportunities for Alphabet and Wuxi Chemical

0.77

Correlation Coefficient

Alphabet  Wuxi Chemical

Poor diversification

The 3 months correlation between Alphabet and Wuxi is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Wuxi Chemical Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wuxi Chemical Equipment 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 Wuxi Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wuxi Chemical Equipment has no effect on the direction of Alphabet i.e., Alphabet and Wuxi Chemical go up and down completely randomly.

Pair Corralation between Alphabet and Wuxi Chemical

Given the investment horizon of 90 days Alphabet is expected to generate 4.22 times less return on investment than Wuxi Chemical. But when comparing it to its historical volatility, Alphabet Inc Class C is 1.87 times less risky than Wuxi Chemical. It trades about 0.11 of its potential returns per unit of risk. Wuxi Chemical Equipment is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  2,530  in Wuxi Chemical Equipment on September 4, 2024 and sell it today you would earn a total of  1,118  from holding Wuxi Chemical Equipment or generate 44.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	92.06%
Values	Daily Returns

Alphabet Inc Class C  vs.  Wuxi Chemical Equipment

Alphabet Class C

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Alphabet may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Wuxi Chemical Equipment

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wuxi Chemical Equipment are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wuxi Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and Wuxi Chemical

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

The idea behind Alphabet Inc Class C and Wuxi Chemical Equipment 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.