Correlation Between Alphabet and China Overseas

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

Diversification Opportunities for Alphabet and China Overseas

-0.9

Correlation Coefficient

Alphabet  China Overseas

Pay attention - limited upside

The 3 months correlation between Alphabet and China is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and China Overseas Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Overseas Land 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 Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Overseas Land has no effect on the direction of Alphabet i.e., Alphabet and China Overseas go up and down completely randomly.

Pair Corralation between Alphabet and China Overseas

Given the investment horizon of 90 days Alphabet Inc Class C is expected to under-perform the China Overseas. But the stock apears to be less risky and, when comparing its historical volatility, Alphabet Inc Class C is 1.6 times less risky than China Overseas. The stock trades about -0.12 of its potential returns per unit of risk. The China Overseas Land is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  765.00  in China Overseas Land on December 29, 2024 and sell it today you would earn a total of  141.00  from holding China Overseas Land or generate 18.43% return on investment over 90 days.

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

Alphabet Inc Class C  vs.  China Overseas Land

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 conflicting performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

China Overseas Land

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Overseas Land are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, China Overseas showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and China Overseas

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

The idea behind Alphabet Inc Class C and China Overseas Land 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.