Correlation Between Alphabet and Digital Imaging

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

Diversification Opportunities for Alphabet and Digital Imaging

-0.46

Correlation Coefficient

Alphabet  Digital Imaging

Very good diversification

The 3 months correlation between Alphabet and Digital is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Digital Imaging Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Imaging Tech 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 Digital Imaging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Imaging Tech has no effect on the direction of Alphabet i.e., Alphabet and Digital Imaging go up and down completely randomly.

Pair Corralation between Alphabet and Digital Imaging

Given the investment horizon of 90 days Alphabet is expected to generate 1.14 times less return on investment than Digital Imaging. But when comparing it to its historical volatility, Alphabet Inc Class C is 2.15 times less risky than Digital Imaging. It trades about 0.34 of its potential returns per unit of risk. Digital Imaging Technology is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,062,000  in Digital Imaging Technology on September 23, 2024 and sell it today you would earn a total of  186,000  from holding Digital Imaging Technology or generate 17.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Alphabet Inc Class C  vs.  Digital Imaging Technology

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 weak basic indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

Digital Imaging Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Digital Imaging Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Alphabet and Digital Imaging

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

The idea behind Alphabet Inc Class C and Digital Imaging Technology 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.