Correlation Between Alphabet and Electra Battery

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

Diversification Opportunities for Alphabet and Electra Battery

0.36

Correlation Coefficient

Alphabet  Electra Battery

Weak diversification

The 3 months correlation between Alphabet and Electra is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc CDR and Electra Battery Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electra Battery Materials 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 Electra Battery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electra Battery Materials has no effect on the direction of Alphabet i.e., Alphabet and Electra Battery go up and down completely randomly.

Pair Corralation between Alphabet and Electra Battery

Assuming the 90 days trading horizon Alphabet is expected to generate 360.89 times less return on investment than Electra Battery. But when comparing it to its historical volatility, Alphabet Inc CDR is 19.43 times less risky than Electra Battery. It trades about 0.01 of its potential returns per unit of risk. Electra Battery Materials is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  67.00  in Electra Battery Materials on December 1, 2024 and sell it today you would earn a total of  167.00  from holding Electra Battery Materials or generate 249.25% return on investment over 90 days.

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

Alphabet Inc CDR  vs.  Electra Battery Materials

Alphabet CDR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alphabet Inc CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Alphabet is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Electra Battery Materials

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Electra Battery Materials are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental drivers, Electra Battery showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and Electra Battery

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

The idea behind Alphabet Inc CDR and Electra Battery Materials 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.