Correlation Between Alphabet and Guangdong Electric

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

Diversification Opportunities for Alphabet and Guangdong Electric

-0.67

Correlation Coefficient

Alphabet  Guangdong Electric

Excellent diversification

The 3 months correlation between Alphabet and Guangdong is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Guangdong Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Electric Power 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 Guangdong Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Electric Power has no effect on the direction of Alphabet i.e., Alphabet and Guangdong Electric go up and down completely randomly.

Pair Corralation between Alphabet and Guangdong Electric

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 2.96 times more return on investment than Guangdong Electric. However, Alphabet is 2.96 times more volatile than Guangdong Electric Power. It trades about 0.0 of its potential returns per unit of risk. Guangdong Electric Power is currently generating about -0.3 per unit of risk. If you would invest  19,363  in Alphabet Inc Class C on October 13, 2024 and sell it today you would lose (46.00) from holding Alphabet Inc Class C or give up 0.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	90.48%
Values	Daily Returns

Alphabet Inc Class C  vs.  Guangdong Electric Power

Alphabet Class C

Risk-Adjusted Performance

11 of 100

Good

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.

Guangdong Electric Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangdong Electric Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Guangdong Electric is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alphabet and Guangdong Electric

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

The idea behind Alphabet Inc Class C and Guangdong Electric Power 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.