Correlation Between Alphabet and IShares NASDAQ

Can any of the company-specific risk be diversified away by investing in both Alphabet and IShares NASDAQ 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 IShares NASDAQ 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 iShares NASDAQ 100, you can compare the effects of market volatilities on Alphabet and IShares NASDAQ 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 IShares NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and IShares NASDAQ.

Diversification Opportunities for Alphabet and IShares NASDAQ

0.85

Correlation Coefficient

Alphabet  IShares NASDAQ

Very poor diversification

The 3 months correlation between Alphabet and IShares is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and iShares NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares NASDAQ 100 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 IShares NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares NASDAQ 100 has no effect on the direction of Alphabet i.e., Alphabet and IShares NASDAQ go up and down completely randomly.

Pair Corralation between Alphabet and IShares NASDAQ

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 2.26 times more return on investment than IShares NASDAQ. However, Alphabet is 2.26 times more volatile than iShares NASDAQ 100. It trades about 0.3 of its potential returns per unit of risk. iShares NASDAQ 100 is currently generating about 0.13 per unit of risk. If you would invest  17,030  in Alphabet Inc Class C on September 30, 2024 and sell it today you would earn a total of  2,374  from holding Alphabet Inc Class C or generate 13.94% return on investment over 90 days.

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

Alphabet Inc Class C  vs.  iShares NASDAQ 100

Alphabet Class C

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

iShares NASDAQ 100

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares NASDAQ 100 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, IShares NASDAQ may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Alphabet and IShares NASDAQ

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

The idea behind Alphabet Inc Class C and iShares NASDAQ 100 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.