Correlation Between GENERAL and Alphabet

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

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

Diversification Opportunities for GENERAL and Alphabet

0.42

Correlation Coefficient

GENERAL  Alphabet

Very weak diversification

The 3 months correlation between GENERAL and Alphabet is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding GENERAL ELEC CAP and Alphabet Inc Class C in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Class C and GENERAL 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 GENERAL ELEC CAP 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 C has no effect on the direction of GENERAL i.e., GENERAL and Alphabet go up and down completely randomly.

Pair Corralation between GENERAL and Alphabet

Assuming the 90 days trading horizon GENERAL ELEC CAP is expected to under-perform the Alphabet. But the bond apears to be less risky and, when comparing its historical volatility, GENERAL ELEC CAP is 1.3 times less risky than Alphabet. The bond trades about -0.05 of its potential returns per unit of risk. The Alphabet Inc Class C is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  15,536  in Alphabet Inc Class C on September 12, 2024 and sell it today you would earn a total of  4,135  from holding Alphabet Inc Class C or generate 26.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	43.75%
Values	Daily Returns

GENERAL ELEC CAP  vs.  Alphabet Inc Class C

GENERAL ELEC CAP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GENERAL ELEC CAP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, GENERAL is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Alphabet Class C

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 18 (%) 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.

Pair Trading with GENERAL and Alphabet

The main advantage of trading using opposite GENERAL and Alphabet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GENERAL 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 GENERAL ELEC CAP and Alphabet Inc Class C 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.