Correlation Between Alphabet and Polar Capital

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

Diversification Opportunities for Alphabet and Polar Capital

0.7

Correlation Coefficient

Alphabet  Polar Capital

Poor diversification

The 3 months correlation between Alphabet and Polar is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Polar Capital Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Polar Capital Funds 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 Polar Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Polar Capital Funds has no effect on the direction of Alphabet i.e., Alphabet and Polar Capital go up and down completely randomly.

Pair Corralation between Alphabet and Polar Capital

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 3.53 times more return on investment than Polar Capital. However, Alphabet is 3.53 times more volatile than Polar Capital Funds. It trades about 0.3 of its potential returns per unit of risk. Polar Capital Funds is currently generating about 0.1 per unit of risk. If you would invest  16,905  in Alphabet Inc Class C on September 22, 2024 and sell it today you would earn a total of  2,391  from holding Alphabet Inc Class C or generate 14.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Alphabet Inc Class C  vs.  Polar Capital Funds

Alphabet Class C

Risk-Adjusted Performance

12 of 100

Good

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

Polar Capital Funds

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Polar Capital Funds are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Polar Capital is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alphabet and Polar Capital

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

The idea behind Alphabet Inc Class C and Polar Capital Funds 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.