Correlation Between Alphabet and New Sources

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

Diversification Opportunities for Alphabet and New Sources

0.45

Correlation Coefficient

Alphabet  New Sources

Very weak diversification

The 3 months correlation between Alphabet and New is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and New Sources Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Sources 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 New Sources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Sources Energy has no effect on the direction of Alphabet i.e., Alphabet and New Sources go up and down completely randomly.

Pair Corralation between Alphabet and New Sources

Given the investment horizon of 90 days Alphabet is expected to generate 1.35 times less return on investment than New Sources. But when comparing it to its historical volatility, Alphabet Inc Class C is 5.12 times less risky than New Sources. It trades about 0.1 of its potential returns per unit of risk. New Sources Energy is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  6.10  in New Sources Energy on September 14, 2024 and sell it today you would lose (4.30) from holding New Sources Energy or give up 70.49% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.4%
Values	Daily Returns

Alphabet Inc Class C  vs.  New Sources Energy

Alphabet Class C

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 16 (%) 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.

New Sources Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in New Sources Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, New Sources unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and New Sources

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

The idea behind Alphabet Inc Class C and New Sources Energy 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.