Correlation Between Alphabet and SPDR SP

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

Diversification Opportunities for Alphabet and SPDR SP

-0.06

Correlation Coefficient

Alphabet  SPDR SP

Good diversification

The 3 months correlation between Alphabet and SPDR is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and SPDR SP Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Utilities 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Utilities has no effect on the direction of Alphabet i.e., Alphabet and SPDR SP go up and down completely randomly.

Pair Corralation between Alphabet and SPDR SP

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 1.78 times more return on investment than SPDR SP. However, Alphabet is 1.78 times more volatile than SPDR SP Utilities. It trades about 0.18 of its potential returns per unit of risk. SPDR SP Utilities is currently generating about -0.01 per unit of risk. If you would invest  15,881  in Alphabet Inc Class C on September 14, 2024 and sell it today you would earn a total of  3,257  from holding Alphabet Inc Class C or generate 20.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Alphabet Inc Class C  vs.  SPDR SP Utilities

Alphabet Class C

Risk-Adjusted Performance

14 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 14 (%) 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.

SPDR SP Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, SPDR SP is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Alphabet and SPDR SP

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

The idea behind Alphabet Inc Class C and SPDR SP Utilities 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.