Correlation Between Alphabet and Capgemini

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

Diversification Opportunities for Alphabet and Capgemini

-0.67

Correlation Coefficient

Alphabet  Capgemini

Excellent diversification

The 3 months correlation between Alphabet and Capgemini is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Capgemini SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capgemini SE 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 Capgemini. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capgemini SE has no effect on the direction of Alphabet i.e., Alphabet and Capgemini go up and down completely randomly.

Pair Corralation between Alphabet and Capgemini

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 1.9 times more return on investment than Capgemini. However, Alphabet is 1.9 times more volatile than Capgemini SE. It trades about 0.34 of its potential returns per unit of risk. Capgemini SE is currently generating about 0.05 per unit of risk. If you would invest  16,638  in Alphabet Inc Class C on September 23, 2024 and sell it today you would earn a total of  2,658  from holding Alphabet Inc Class C or generate 15.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Alphabet Inc Class C  vs.  Capgemini SE

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

Capgemini SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capgemini SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile 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 Capgemini

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

The idea behind Alphabet Inc Class C and Capgemini SE 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.