Correlation Between US Financial and Alphabet

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

By analyzing existing cross correlation between US Financial 15 and Alphabet Inc CDR, you can compare the effects of market volatilities on US Financial 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 US Financial with a short position of Alphabet. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Financial and Alphabet.

Diversification Opportunities for US Financial and Alphabet

0.56

Correlation Coefficient

US Financial  Alphabet

Very weak diversification

The 3 months correlation between FTU-PB and Alphabet is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding US Financial 15 and Alphabet Inc CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet CDR and US Financial 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 US Financial 15 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 CDR has no effect on the direction of US Financial i.e., US Financial and Alphabet go up and down completely randomly.

Pair Corralation between US Financial and Alphabet

Assuming the 90 days trading horizon US Financial 15 is expected to under-perform the Alphabet. But the preferred stock apears to be less risky and, when comparing its historical volatility, US Financial 15 is 1.95 times less risky than Alphabet. The preferred stock trades about -0.23 of its potential returns per unit of risk. The Alphabet Inc CDR is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  2,898  in Alphabet Inc CDR on October 6, 2024 and sell it today you would earn a total of  313.00  from holding Alphabet Inc CDR or generate 10.8% return on investment over 90 days.

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

US Financial 15  vs.  Alphabet Inc CDR

US Financial 15

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in US Financial 15 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, US Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Alphabet CDR

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc CDR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Alphabet exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with US Financial and Alphabet

The main advantage of trading using opposite US Financial and Alphabet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Financial 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 US Financial 15 and Alphabet Inc CDR 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.