Correlation Between Alphabet and Emerging Markets

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

Diversification Opportunities for Alphabet and Emerging Markets

-0.34

Correlation Coefficient

Alphabet  Emerging Markets

Very good diversification

The 3 months correlation between Alphabet and Emerging is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Emerging Markets Sustainabilit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Sus 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 Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets Sus has no effect on the direction of Alphabet i.e., Alphabet and Emerging Markets go up and down completely randomly.

Pair Corralation between Alphabet and Emerging Markets

Given the investment horizon of 90 days Alphabet Inc Class C is expected to under-perform the Emerging Markets. In addition to that, Alphabet is 2.82 times more volatile than Emerging Markets Sustainability. It trades about -0.02 of its total potential returns per unit of risk. Emerging Markets Sustainability is currently generating about -0.04 per unit of volatility. If you would invest  963.00  in Emerging Markets Sustainability on December 4, 2024 and sell it today you would lose (18.00) from holding Emerging Markets Sustainability or give up 1.87% of portfolio value over 90 days.

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

Alphabet Inc Class C  vs.  Emerging Markets Sustainabilit

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.

Emerging Markets Sus

Risk-Adjusted Performance

Very Weak

Over the last 90 days Emerging Markets Sustainability has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Emerging Markets is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alphabet and Emerging Markets

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

The idea behind Alphabet Inc Class C and Emerging Markets Sustainability 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.