Correlation Between Alphabet and Air Canada

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

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

Diversification Opportunities for Alphabet and Air Canada

-0.45

Correlation Coefficient

Alphabet  Air Canada

Very good diversification

The 3 months correlation between Alphabet and Air is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc CDR and Air Canada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Canada 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 Inc CDR are associated (or correlated) with Air Canada. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Canada has no effect on the direction of Alphabet i.e., Alphabet and Air Canada go up and down completely randomly.

Pair Corralation between Alphabet and Air Canada

Assuming the 90 days trading horizon Alphabet Inc CDR is expected to generate 1.3 times more return on investment than Air Canada. However, Alphabet is 1.3 times more volatile than Air Canada. It trades about -0.2 of its potential returns per unit of risk. Air Canada is currently generating about -0.28 per unit of risk. If you would invest  3,272  in Alphabet Inc CDR on November 29, 2024 and sell it today you would lose (380.00) from holding Alphabet Inc CDR or give up 11.61% of portfolio value over 90 days.

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

Alphabet Inc CDR  vs.  Air Canada

Alphabet CDR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc CDR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Alphabet is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Air Canada

Risk-Adjusted Performance

Very Weak

Over the last 90 days Air Canada has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Alphabet and Air Canada

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

The idea behind Alphabet Inc CDR and Air Canada 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.