Correlation Between Alphabet and Bengal Energy

Can any of the company-specific risk be diversified away by investing in both Alphabet and Bengal Energy 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 Bengal Energy 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 Bengal Energy, you can compare the effects of market volatilities on Alphabet and Bengal Energy 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 Bengal Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and Bengal Energy.

Diversification Opportunities for Alphabet and Bengal Energy

0.06

Correlation Coefficient

Alphabet  Bengal Energy

Significant diversification

The 3 months correlation between Alphabet and Bengal is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc CDR and Bengal Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bengal Energy 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 Bengal Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bengal Energy has no effect on the direction of Alphabet i.e., Alphabet and Bengal Energy go up and down completely randomly.

Pair Corralation between Alphabet and Bengal Energy

Assuming the 90 days trading horizon Alphabet is expected to generate 12.86 times less return on investment than Bengal Energy. But when comparing it to its historical volatility, Alphabet Inc CDR is 20.49 times less risky than Bengal Energy. It trades about 0.16 of its potential returns per unit of risk. Bengal Energy is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1.00  in Bengal Energy on October 27, 2024 and sell it today you would earn a total of  0.00  from holding Bengal Energy or generate 0.0% return on investment over 90 days.

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

Alphabet Inc CDR  vs.  Bengal Energy

Alphabet CDR

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc CDR are ranked lower than 12 (%) 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.

Bengal Energy

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bengal Energy are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Bengal Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and Bengal Energy

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

The idea behind Alphabet Inc CDR and Bengal Energy 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.