Correlation Between Alphabet and Nasdaq 100

Can any of the company-specific risk be diversified away by investing in both Alphabet and Nasdaq 100 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 Nasdaq 100 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 Nasdaq 100, you can compare the effects of market volatilities on Alphabet and Nasdaq 100 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 Nasdaq 100. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and Nasdaq 100.

Diversification Opportunities for Alphabet and Nasdaq 100

0.79

Correlation Coefficient

Alphabet  Nasdaq 100

Poor diversification

The 3 months correlation between Alphabet and Nasdaq is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class A and Nasdaq 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 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 Nasdaq 100. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 has no effect on the direction of Alphabet i.e., Alphabet and Nasdaq 100 go up and down completely randomly.

Pair Corralation between Alphabet and Nasdaq 100

Assuming the 90 days horizon Alphabet is expected to generate 3.2 times less return on investment than Nasdaq 100. In addition to that, Alphabet is 1.93 times more volatile than Nasdaq 100. It trades about 0.04 of its total potential returns per unit of risk. Nasdaq 100 is currently generating about 0.26 per unit of volatility. If you would invest  2,008,600  in Nasdaq 100 on September 4, 2024 and sell it today you would earn a total of  114,225  from holding Nasdaq 100 or generate 5.69% return on investment over 90 days.

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

Alphabet Inc Class A  vs.  Nasdaq 100

Alphabet Class A

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class A are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile technical and fundamental indicators, Alphabet may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Nasdaq 100

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Nasdaq 100 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Alphabet and Nasdaq 100

The main advantage of trading using opposite Alphabet and Nasdaq 100 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet position performs unexpectedly, Nasdaq 100 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 Nasdaq 100 will offset losses from the drop in Nasdaq 100's long position.

The idea behind Alphabet Inc Class A and Nasdaq 100 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.