Correlation Between Extra Space and Alphabet

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

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

Diversification Opportunities for Extra Space and Alphabet

0.14

Correlation Coefficient

Extra Space  Alphabet

Average diversification

The 3 months correlation between Extra and Alphabet is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Extra Space Storage and Alphabet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet and Extra Space 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 Extra Space Storage 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 has no effect on the direction of Extra Space i.e., Extra Space and Alphabet go up and down completely randomly.

Pair Corralation between Extra Space and Alphabet

Assuming the 90 days trading horizon Extra Space is expected to generate 17.35 times less return on investment than Alphabet. In addition to that, Extra Space is 1.47 times more volatile than Alphabet. It trades about 0.01 of its total potential returns per unit of risk. Alphabet is currently generating about 0.26 per unit of volatility. If you would invest  7,332  in Alphabet on September 17, 2024 and sell it today you would earn a total of  2,375  from holding Alphabet or generate 32.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Extra Space Storage  vs.  Alphabet

Extra Space Storage

Risk-Adjusted Performance

0 of 100

Very Weak

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

Alphabet

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Alphabet sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Extra Space and Alphabet

The main advantage of trading using opposite Extra Space and Alphabet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Extra Space 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 Extra Space Storage and Alphabet 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.