Correlation Between Alphabet and Hafnia

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

Diversification Opportunities for Alphabet and Hafnia

-0.09

Correlation Coefficient

Alphabet  Hafnia

Good diversification

The 3 months correlation between Alphabet and Hafnia is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Hafnia Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hafnia Limited 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 Hafnia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hafnia Limited has no effect on the direction of Alphabet i.e., Alphabet and Hafnia go up and down completely randomly.

Pair Corralation between Alphabet and Hafnia

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 3.47 times more return on investment than Hafnia. However, Alphabet is 3.47 times more volatile than Hafnia Limited. It trades about 0.19 of its potential returns per unit of risk. Hafnia Limited is currently generating about -0.68 per unit of risk. If you would invest  17,589  in Alphabet Inc Class C on October 5, 2024 and sell it today you would earn a total of  1,474  from holding Alphabet Inc Class C or generate 8.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	20.0%
Values	Daily Returns

Alphabet Inc Class C  vs.  Hafnia Limited

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

Hafnia Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hafnia Limited 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 nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Alphabet and Hafnia

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

The idea behind Alphabet Inc Class C and Hafnia Limited 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.