Correlation Between Bath Body and Alphabet

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

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

Diversification Opportunities for Bath Body and Alphabet

0.61

Correlation Coefficient

Bath Body  Alphabet

Poor diversification

The 3 months correlation between Bath and Alphabet is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Bath Body Works 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 Bath Body 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 Bath Body Works 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 Bath Body i.e., Bath Body and Alphabet go up and down completely randomly.

Pair Corralation between Bath Body and Alphabet

Assuming the 90 days trading horizon Bath Body is expected to generate 1.35 times less return on investment than Alphabet. In addition to that, Bath Body is 1.07 times more volatile than Alphabet Class A. It trades about 0.17 of its total potential returns per unit of risk. Alphabet Class A is currently generating about 0.25 per unit of volatility. If you would invest  16,750  in Alphabet Class A on September 24, 2024 and sell it today you would earn a total of  2,330  from holding Alphabet Class A or generate 13.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Bath Body Works  vs.  Alphabet Class A

Bath Body Works

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bath Body Works are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Bath Body unveiled solid returns over the last few months and may actually be approaching a breakup point.

Alphabet Class A

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Class A are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Alphabet unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bath Body and Alphabet

The main advantage of trading using opposite Bath Body and Alphabet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bath Body 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 Bath Body Works 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.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.