Correlation Between Alphabet and LPL Financial

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

By analyzing existing cross correlation between Alphabet and LPL Financial Holdings, you can compare the effects of market volatilities on Alphabet and LPL Financial 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 LPL Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and LPL Financial.

Diversification Opportunities for Alphabet and LPL Financial

0.86

Correlation Coefficient

Alphabet  LPL Financial

Very poor diversification

The 3 months correlation between Alphabet and LPL is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet and LPL Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LPL Financial Holdings 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 are associated (or correlated) with LPL Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LPL Financial Holdings has no effect on the direction of Alphabet i.e., Alphabet and LPL Financial go up and down completely randomly.

Pair Corralation between Alphabet and LPL Financial

Assuming the 90 days trading horizon Alphabet is expected to under-perform the LPL Financial. But the stock apears to be less risky and, when comparing its historical volatility, Alphabet is 1.06 times less risky than LPL Financial. The stock trades about -0.04 of its potential returns per unit of risk. The LPL Financial Holdings is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  11,314  in LPL Financial Holdings on October 23, 2024 and sell it today you would earn a total of  482.00  from holding LPL Financial Holdings or generate 4.26% return on investment over 90 days.

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

Alphabet  vs.  LPL Financial Holdings

Alphabet

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Alphabet sustained solid returns over the last few months and may actually be approaching a breakup point.

LPL Financial Holdings

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in LPL Financial Holdings are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LPL Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and LPL Financial

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

The idea behind Alphabet and LPL Financial Holdings 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.