Correlation Between Alphabet and AAP

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

Diversification Opportunities for Alphabet and AAP

0.11

Correlation Coefficient

Alphabet  AAP

Average diversification

The 3 months correlation between Alphabet and AAP is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and AAP Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAP Inc 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 AAP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAP Inc has no effect on the direction of Alphabet i.e., Alphabet and AAP go up and down completely randomly.

Pair Corralation between Alphabet and AAP

Given the investment horizon of 90 days Alphabet Inc Class C is expected to under-perform the AAP. But the stock apears to be less risky and, when comparing its historical volatility, Alphabet Inc Class C is 19.9 times less risky than AAP. The stock trades about -0.44 of its potential returns per unit of risk. The AAP Inc is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  0.01  in AAP Inc on December 4, 2024 and sell it today you would earn a total of  0.01  from holding AAP Inc or generate 100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Alphabet Inc Class C  vs.  AAP Inc

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.

AAP Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AAP Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, AAP revealed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and AAP

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

The idea behind Alphabet Inc Class C and AAP Inc 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.