Correlation Between Alphabet and China Steel

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

Diversification Opportunities for Alphabet and China Steel

-0.36

Correlation Coefficient

Alphabet  China Steel

Very good diversification

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

Pair Corralation between Alphabet and China Steel

Given the investment horizon of 90 days Alphabet is expected to generate 13.86 times less return on investment than China Steel. But when comparing it to its historical volatility, Alphabet Inc Class C is 25.95 times less risky than China Steel. It trades about 0.08 of its potential returns per unit of risk. China Steel Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,478  in China Steel Corp on December 4, 2024 and sell it today you would lose (458.00) from holding China Steel Corp or give up 10.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.37%
Values	Daily Returns

Alphabet Inc Class C  vs.  China Steel Corp

Alphabet Class C

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alphabet Inc Class C has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Alphabet is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

China Steel Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Steel Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, China Steel is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Alphabet and China Steel

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

The idea behind Alphabet Inc Class C and China Steel Corp 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.