Correlation Between Media and Alphabet

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

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

Diversification Opportunities for Media and Alphabet

0.24

Correlation Coefficient

Media  Alphabet

Modest diversification

The 3 months correlation between Media and Alphabet is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Media and Games and Alphabet Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Class A and Media 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 Media and Games are associated (or correlated) with Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet Class A has no effect on the direction of Media i.e., Media and Alphabet go up and down completely randomly.

Pair Corralation between Media and Alphabet

Assuming the 90 days trading horizon Media and Games is expected to under-perform the Alphabet. In addition to that, Media is 1.85 times more volatile than Alphabet Class A. It trades about -0.15 of its total potential returns per unit of risk. Alphabet Class A is currently generating about 0.24 per unit of volatility. If you would invest  16,719  in Alphabet Class A on September 20, 2024 and sell it today you would earn a total of  1,945  from holding Alphabet Class A or generate 11.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Media and Games  vs.  Alphabet Class A

Media and Games

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Media and Games has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Media is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Alphabet Class A

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Class A are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Alphabet exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Media and Alphabet

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

The idea behind Media and Games and Alphabet Class A 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.