Correlation Between Alphabet and Finebesteel

Can any of the company-specific risk be diversified away by investing in both Alphabet and Finebesteel 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 Finebesteel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alphabet Inc Class A and Finebesteel, you can compare the effects of market volatilities on Alphabet and Finebesteel 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 Finebesteel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and Finebesteel.

Diversification Opportunities for Alphabet and Finebesteel

0.7

Correlation Coefficient

Alphabet  Finebesteel

Poor diversification

The 3 months correlation between Alphabet and Finebesteel is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class A and Finebesteel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Finebesteel 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 A are associated (or correlated) with Finebesteel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Finebesteel has no effect on the direction of Alphabet i.e., Alphabet and Finebesteel go up and down completely randomly.

Pair Corralation between Alphabet and Finebesteel

Assuming the 90 days trading horizon Alphabet Inc Class A is expected to generate 0.51 times more return on investment than Finebesteel. However, Alphabet Inc Class A is 1.96 times less risky than Finebesteel. It trades about 0.25 of its potential returns per unit of risk. Finebesteel is currently generating about 0.12 per unit of risk. If you would invest  303,275  in Alphabet Inc Class A on September 13, 2024 and sell it today you would earn a total of  88,297  from holding Alphabet Inc Class A or generate 29.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.08%
Values	Daily Returns

Alphabet Inc Class A  vs.  Finebesteel

Alphabet Class A

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class A are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Alphabet displayed solid returns over the last few months and may actually be approaching a breakup point.

Finebesteel

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Finebesteel are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Finebesteel sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and Finebesteel

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

The idea behind Alphabet Inc Class A and Finebesteel 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.