Correlation Between Alphabet and International Business

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

Diversification Opportunities for Alphabet and International Business

0.37

Correlation Coefficient

Alphabet  International Business

Weak diversification

The 3 months correlation between Alphabet and International is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Business 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 International Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Business has no effect on the direction of Alphabet i.e., Alphabet and International Business go up and down completely randomly.

Pair Corralation between Alphabet and International Business

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 1.04 times more return on investment than International Business. However, Alphabet is 1.04 times more volatile than International Business Machines. It trades about 0.19 of its potential returns per unit of risk. International Business Machines is currently generating about 0.14 per unit of risk. If you would invest  16,063  in Alphabet Inc Class C on September 18, 2024 and sell it today you would earn a total of  3,648  from holding Alphabet Inc Class C or generate 22.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.31%
Values	Daily Returns

Alphabet Inc Class C  vs.  International Business Machine

Alphabet Class C

Risk-Adjusted Performance

15 of 100

Good

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 unfluctuating basic indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

International Business

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, International Business showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and International Business

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

The idea behind Alphabet Inc Class C and International Business Machines 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.