Correlation Between Alphabet and Contact Energy

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

Diversification Opportunities for Alphabet and Contact Energy

0.27

Correlation Coefficient

Alphabet  Contact Energy

Modest diversification

The 3 months correlation between Alphabet and Contact is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Contact Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Contact Energy 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 Contact Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Contact Energy has no effect on the direction of Alphabet i.e., Alphabet and Contact Energy go up and down completely randomly.

Pair Corralation between Alphabet and Contact Energy

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 1.8 times more return on investment than Contact Energy. However, Alphabet is 1.8 times more volatile than Contact Energy Limited. It trades about 0.15 of its potential returns per unit of risk. Contact Energy Limited is currently generating about 0.05 per unit of risk. If you would invest  17,660  in Alphabet Inc Class C on September 19, 2024 and sell it today you would earn a total of  1,355  from holding Alphabet Inc Class C or generate 7.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Alphabet Inc Class C  vs.  Contact Energy Limited

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 conflicting basic indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

Contact Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Contact Energy Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Contact Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Alphabet and Contact Energy

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

The idea behind Alphabet Inc Class C and Contact Energy Limited 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.