Correlation Between Alphabet and SP Preferred

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

Diversification Opportunities for Alphabet and SP Preferred

-0.61

Correlation Coefficient

Alphabet  SP Preferred

Excellent diversification

The 3 months correlation between Alphabet and SPPREF is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and SP Preferred Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP Preferred Stock 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 SP Preferred. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP Preferred Stock has no effect on the direction of Alphabet i.e., Alphabet and SP Preferred go up and down completely randomly.

Pair Corralation between Alphabet and SP Preferred

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 3.87 times more return on investment than SP Preferred. However, Alphabet is 3.87 times more volatile than SP Preferred Stock. It trades about 0.04 of its potential returns per unit of risk. SP Preferred Stock is currently generating about 0.05 per unit of risk. If you would invest  17,834  in Alphabet Inc Class C on September 15, 2024 and sell it today you would earn a total of  1,304  from holding Alphabet Inc Class C or generate 7.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.21%
Values	Daily Returns

Alphabet Inc Class C  vs.  SP Preferred Stock

Pair Trading with Alphabet and SP Preferred

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

The idea behind Alphabet Inc Class C and SP Preferred Stock 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.