Correlation Between Alphabet and Easterly Government

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

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

Diversification Opportunities for Alphabet and Easterly Government

-0.63

Correlation Coefficient

Alphabet  Easterly Government

Excellent diversification

The 3 months correlation between Alphabet and Easterly is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Class A and Easterly Government Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Easterly Government 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 Class A are associated (or correlated) with Easterly Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Easterly Government has no effect on the direction of Alphabet i.e., Alphabet and Easterly Government go up and down completely randomly.

Pair Corralation between Alphabet and Easterly Government

Assuming the 90 days trading horizon Alphabet Class A is expected to generate 1.53 times more return on investment than Easterly Government. However, Alphabet is 1.53 times more volatile than Easterly Government Properties. It trades about 0.34 of its potential returns per unit of risk. Easterly Government Properties is currently generating about -0.31 per unit of risk. If you would invest  16,132  in Alphabet Class A on September 27, 2024 and sell it today you would earn a total of  2,578  from holding Alphabet Class A or generate 15.98% return on investment over 90 days.

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

Alphabet Class A  vs.  Easterly Government Properties

Alphabet Class A

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Class A are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

Easterly Government

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Easterly Government Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Alphabet and Easterly Government

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

The idea behind Alphabet Class A and Easterly Government Properties 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .