Correlation Between Alphabet and Aerovate Therapeutics

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

Diversification Opportunities for Alphabet and Aerovate Therapeutics

0.81

Correlation Coefficient

Alphabet  Aerovate Therapeutics

Very poor diversification

The 3 months correlation between Alphabet and Aerovate is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Aerovate Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aerovate Therapeutics 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 Aerovate Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aerovate Therapeutics has no effect on the direction of Alphabet i.e., Alphabet and Aerovate Therapeutics go up and down completely randomly.

Pair Corralation between Alphabet and Aerovate Therapeutics

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 0.98 times more return on investment than Aerovate Therapeutics. However, Alphabet Inc Class C is 1.02 times less risky than Aerovate Therapeutics. It trades about 0.07 of its potential returns per unit of risk. Aerovate Therapeutics is currently generating about 0.01 per unit of risk. If you would invest  18,176  in Alphabet Inc Class C on September 12, 2024 and sell it today you would earn a total of  477.00  from holding Alphabet Inc Class C or generate 2.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Alphabet Inc Class C  vs.  Aerovate Therapeutics

Alphabet Class C

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 15 (%) 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.

Aerovate Therapeutics

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aerovate Therapeutics are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Aerovate Therapeutics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and Aerovate Therapeutics

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

The idea behind Alphabet Inc Class C and Aerovate Therapeutics 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.