Correlation Between Alphabet and AU Optronics

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

Diversification Opportunities for Alphabet and AU Optronics

-0.16

Correlation Coefficient

Alphabet  AU Optronics

Good diversification

The 3 months correlation between Alphabet and AUOTY is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and AU Optronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AU Optronics Corp 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 AU Optronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AU Optronics Corp has no effect on the direction of Alphabet i.e., Alphabet and AU Optronics go up and down completely randomly.

Pair Corralation between Alphabet and AU Optronics

Given the investment horizon of 90 days Alphabet is expected to generate 4.09 times less return on investment than AU Optronics. But when comparing it to its historical volatility, Alphabet Inc Class C is 1.03 times less risky than AU Optronics. It trades about 0.09 of its potential returns per unit of risk. AU Optronics Corp is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  492.00  in AU Optronics Corp on September 21, 2024 and sell it today you would earn a total of  98.00  from holding AU Optronics Corp or generate 19.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	5.45%
Values	Daily Returns

Alphabet Inc Class C  vs.  AU Optronics Corp

Alphabet Class C

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

AU Optronics Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AU Optronics Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, AU Optronics is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alphabet and AU Optronics

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

The idea behind Alphabet Inc Class C and AU Optronics Corp 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.