Correlation Between Alphabet and VanEck Defense

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

Diversification Opportunities for Alphabet and VanEck Defense

0.52

Correlation Coefficient

Alphabet  VanEck Defense

Very weak diversification

The 3 months correlation between Alphabet and VanEck is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and VanEck Defense ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Defense ETF 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 VanEck Defense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Defense ETF has no effect on the direction of Alphabet i.e., Alphabet and VanEck Defense go up and down completely randomly.

Pair Corralation between Alphabet and VanEck Defense

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 2.18 times more return on investment than VanEck Defense. However, Alphabet is 2.18 times more volatile than VanEck Defense ETF. It trades about 0.36 of its potential returns per unit of risk. VanEck Defense ETF is currently generating about -0.1 per unit of risk. If you would invest  16,924  in Alphabet Inc Class C on September 26, 2024 and sell it today you would earn a total of  2,833  from holding Alphabet Inc Class C or generate 16.74% return on investment over 90 days.

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

Alphabet Inc Class C  vs.  VanEck Defense ETF

Alphabet Class C

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 13 (%) 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.

VanEck Defense ETF

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Defense ETF are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, VanEck Defense exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and VanEck Defense

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

The idea behind Alphabet Inc Class C and VanEck Defense ETF 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.