Correlation Between Alphabet and BM European

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

Diversification Opportunities for Alphabet and BM European

-0.59

Correlation Coefficient

Alphabet  BM European

Excellent diversification

The 3 months correlation between Alphabet and BMRRY is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and BM European Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BM European Value 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 BM European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BM European Value has no effect on the direction of Alphabet i.e., Alphabet and BM European go up and down completely randomly.

Pair Corralation between Alphabet and BM European

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 1.36 times more return on investment than BM European. However, Alphabet is 1.36 times more volatile than BM European Value. It trades about 0.34 of its potential returns per unit of risk. BM European Value is currently generating about 0.18 per unit of risk. If you would invest  17,063  in Alphabet Inc Class C on September 28, 2024 and sell it today you would earn a total of  2,647  from holding Alphabet Inc Class C or generate 15.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Alphabet Inc Class C  vs.  BM European Value

Alphabet Class C

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

BM European Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BM European Value has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Alphabet and BM European

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

The idea behind Alphabet Inc Class C and BM European Value 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.