Correlation Between Alphabet and Bayerische Motoren

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

Diversification Opportunities for Alphabet and Bayerische Motoren

-0.76

Correlation Coefficient

Alphabet  Bayerische Motoren

Pay attention - limited upside

The 3 months correlation between Alphabet and Bayerische is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Bayerische Motoren Werke in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayerische Motoren Werke 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 Bayerische Motoren. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bayerische Motoren Werke has no effect on the direction of Alphabet i.e., Alphabet and Bayerische Motoren go up and down completely randomly.

Pair Corralation between Alphabet and Bayerische Motoren

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 0.86 times more return on investment than Bayerische Motoren. However, Alphabet Inc Class C is 1.16 times less risky than Bayerische Motoren. It trades about 0.22 of its potential returns per unit of risk. Bayerische Motoren Werke is currently generating about -0.17 per unit of risk. If you would invest  15,819  in Alphabet Inc Class C on September 13, 2024 and sell it today you would earn a total of  3,852  from holding Alphabet Inc Class C or generate 24.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Alphabet Inc Class C  vs.  Bayerische Motoren Werke

Alphabet Class C

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 17 (%) 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.

Bayerische Motoren Werke

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bayerische Motoren Werke has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Alphabet and Bayerische Motoren

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

The idea behind Alphabet Inc Class C and Bayerische Motoren Werke 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.