Correlation Between Alphabet and AUTO TRADER

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

Diversification Opportunities for Alphabet and AUTO TRADER

-0.56

Correlation Coefficient

Alphabet  AUTO TRADER

Excellent diversification

The 3 months correlation between Alphabet and AUTO is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Class A and AUTO TRADER ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AUTO TRADER ADR 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 AUTO TRADER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AUTO TRADER ADR has no effect on the direction of Alphabet i.e., Alphabet and AUTO TRADER go up and down completely randomly.

Pair Corralation between Alphabet and AUTO TRADER

Assuming the 90 days trading horizon Alphabet Class A is expected to generate 1.33 times more return on investment than AUTO TRADER. However, Alphabet is 1.33 times more volatile than AUTO TRADER ADR. It trades about 0.0 of its potential returns per unit of risk. AUTO TRADER ADR is currently generating about -0.07 per unit of risk. If you would invest  16,485  in Alphabet Class A on December 4, 2024 and sell it today you would lose (243.00) from holding Alphabet Class A or give up 1.47% of portfolio value over 90 days.

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

Alphabet Class A  vs.  AUTO TRADER ADR

Alphabet Class A

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alphabet Class A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Alphabet is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

AUTO TRADER ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days AUTO TRADER ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, AUTO TRADER is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Alphabet and AUTO TRADER

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

The idea behind Alphabet Class A and AUTO TRADER ADR 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.