Correlation Between Alphabet and American Outdoor

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

Diversification Opportunities for Alphabet and American Outdoor

0.71

Correlation Coefficient

Alphabet  American Outdoor

Poor diversification

The 3 months correlation between Alphabet and American is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and American Outdoor Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Outdoor Brands 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 American Outdoor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Outdoor Brands has no effect on the direction of Alphabet i.e., Alphabet and American Outdoor go up and down completely randomly.

Pair Corralation between Alphabet and American Outdoor

Given the investment horizon of 90 days Alphabet is expected to generate 56.03 times less return on investment than American Outdoor. But when comparing it to its historical volatility, Alphabet Inc Class C is 2.03 times less risky than American Outdoor. It trades about 0.01 of its potential returns per unit of risk. American Outdoor Brands is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  987.00  in American Outdoor Brands on December 1, 2024 and sell it today you would earn a total of  603.00  from holding American Outdoor Brands or generate 61.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Alphabet Inc Class C  vs.  American Outdoor Brands

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.

American Outdoor Brands

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Outdoor Brands are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, American Outdoor unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and American Outdoor

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

The idea behind Alphabet Inc Class C and American Outdoor Brands 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.