Correlation Between Alphabet and Nanjing Red

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

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

Diversification Opportunities for Alphabet and Nanjing Red

0.73

Correlation Coefficient

Alphabet  Nanjing Red

Poor diversification

The 3 months correlation between Alphabet and Nanjing is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Nanjing Red Sun in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nanjing Red Sun 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 Class C are associated (or correlated) with Nanjing Red. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nanjing Red Sun has no effect on the direction of Alphabet i.e., Alphabet and Nanjing Red go up and down completely randomly.

Pair Corralation between Alphabet and Nanjing Red

Given the investment horizon of 90 days Alphabet is expected to generate 1.23 times less return on investment than Nanjing Red. But when comparing it to its historical volatility, Alphabet Inc Class C is 1.89 times less risky than Nanjing Red. It trades about 0.08 of its potential returns per unit of risk. Nanjing Red Sun is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  552.00  in Nanjing Red Sun on September 21, 2024 and sell it today you would earn a total of  187.00  from holding Nanjing Red Sun or generate 33.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.91%
Values	Daily Returns

Alphabet Inc Class C  vs.  Nanjing Red Sun

Alphabet Class C

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

Nanjing Red Sun

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nanjing Red Sun are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nanjing Red sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and Nanjing Red

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

The idea behind Alphabet Inc Class C and Nanjing Red Sun 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.