Correlation Between Alphabet and Aju IB

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

Diversification Opportunities for Alphabet and Aju IB

0.47

Correlation Coefficient

Alphabet  Aju IB

Very weak diversification

The 3 months correlation between Alphabet and Aju is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Aju IB Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aju IB Investment 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 Aju IB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aju IB Investment has no effect on the direction of Alphabet i.e., Alphabet and Aju IB go up and down completely randomly.

Pair Corralation between Alphabet and Aju IB

Given the investment horizon of 90 days Alphabet is expected to generate 4.88 times less return on investment than Aju IB. But when comparing it to its historical volatility, Alphabet Inc Class C is 4.07 times less risky than Aju IB. It trades about 0.08 of its potential returns per unit of risk. Aju IB Investment is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  214,000  in Aju IB Investment on September 1, 2024 and sell it today you would earn a total of  67,000  from holding Aju IB Investment or generate 31.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	93.65%
Values	Daily Returns

Alphabet Inc Class C  vs.  Aju IB Investment

Alphabet Class C

Risk-Adjusted Performance

6 of 100

Modest

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.

Aju IB Investment

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aju IB Investment are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Aju IB sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and Aju IB

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

The idea behind Alphabet Inc Class C and Aju IB Investment 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.