Correlation Between Meta Platforms and Alphabet

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

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

Diversification Opportunities for Meta Platforms and Alphabet

0.79

Correlation Coefficient

Meta Platforms  Alphabet

Poor diversification

The 3 months correlation between Meta and Alphabet is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Meta Platforms and Alphabet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet and Meta Platforms 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 Meta Platforms 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 Meta Platforms i.e., Meta Platforms and Alphabet go up and down completely randomly.

Pair Corralation between Meta Platforms and Alphabet

Assuming the 90 days trading horizon Meta Platforms is expected to under-perform the Alphabet. But the stock apears to be less risky and, when comparing its historical volatility, Meta Platforms is 1.07 times less risky than Alphabet. The stock trades about -0.1 of its potential returns per unit of risk. The Alphabet is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  18,506  in Alphabet on October 12, 2024 and sell it today you would earn a total of  590.00  from holding Alphabet or generate 3.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.44%
Values	Daily Returns

Meta Platforms  vs.  Alphabet

Meta Platforms

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Meta Platforms are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Meta Platforms may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Alphabet

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet 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.

Pair Trading with Meta Platforms and Alphabet

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

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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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..