Correlation Between Alphabet and Electronic City

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

Diversification Opportunities for Alphabet and Electronic City

-0.1

Correlation Coefficient

Alphabet  Electronic City

Good diversification

The 3 months correlation between Alphabet and Electronic is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Electronic City Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic City Indonesia 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 Electronic City. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electronic City Indonesia has no effect on the direction of Alphabet i.e., Alphabet and Electronic City go up and down completely randomly.

Pair Corralation between Alphabet and Electronic City

Given the investment horizon of 90 days Alphabet is expected to generate 2.06 times less return on investment than Electronic City. But when comparing it to its historical volatility, Alphabet Inc Class C is 4.78 times less risky than Electronic City. It trades about 0.2 of its potential returns per unit of risk. Electronic City Indonesia is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  24,000  in Electronic City Indonesia on September 13, 2024 and sell it today you would earn a total of  6,800  from holding Electronic City Indonesia or generate 28.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Alphabet Inc Class C  vs.  Electronic City Indonesia

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.

Electronic City Indonesia

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Electronic City Indonesia are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Electronic City disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and Electronic City

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

The idea behind Alphabet Inc Class C and Electronic City Indonesia 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.