Correlation Between Alphabet and Fredonia Mining

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

Diversification Opportunities for Alphabet and Fredonia Mining

0.15

Correlation Coefficient

Alphabet  Fredonia Mining

Average diversification

The 3 months correlation between Alphabet and Fredonia is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Fredonia Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fredonia Mining 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 Fredonia Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fredonia Mining has no effect on the direction of Alphabet i.e., Alphabet and Fredonia Mining go up and down completely randomly.

Pair Corralation between Alphabet and Fredonia Mining

Given the investment horizon of 90 days Alphabet is expected to generate 2.16 times less return on investment than Fredonia Mining. But when comparing it to its historical volatility, Alphabet Inc Class C is 5.65 times less risky than Fredonia Mining. It trades about 0.1 of its potential returns per unit of risk. Fredonia Mining is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  50.00  in Fredonia Mining on September 30, 2024 and sell it today you would lose (22.00) from holding Fredonia Mining or give up 44.0% of portfolio value over 90 days.

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

Alphabet Inc Class C  vs.  Fredonia Mining

Alphabet Class C

Risk-Adjusted Performance

10 of 100

OK

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.

Fredonia Mining

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fredonia Mining are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, Fredonia Mining showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and Fredonia Mining

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

The idea behind Alphabet Inc Class C and Fredonia Mining 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 Transaction History module to view history of all your transactions and understand their impact on performance.