Correlation Between Alphabet and Karat Packaging

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

Diversification Opportunities for Alphabet and Karat Packaging

0.42

Correlation Coefficient

Alphabet  Karat Packaging

Very weak diversification

The 3 months correlation between Alphabet and Karat is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Karat Packaging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Karat Packaging 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 Karat Packaging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Karat Packaging has no effect on the direction of Alphabet i.e., Alphabet and Karat Packaging go up and down completely randomly.

Pair Corralation between Alphabet and Karat Packaging

Given the investment horizon of 90 days Alphabet Inc Class C is expected to under-perform the Karat Packaging. But the stock apears to be less risky and, when comparing its historical volatility, Alphabet Inc Class C is 1.0 times less risky than Karat Packaging. The stock trades about -0.12 of its potential returns per unit of risk. The Karat Packaging is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  2,949  in Karat Packaging on December 29, 2024 and sell it today you would lose (224.00) from holding Karat Packaging or give up 7.6% of portfolio value over 90 days.

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

Alphabet Inc Class C  vs.  Karat Packaging

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 conflicting performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Karat Packaging

Risk-Adjusted Performance

Very Weak

Over the last 90 days Karat Packaging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Alphabet and Karat Packaging

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

The idea behind Alphabet Inc Class C and Karat Packaging 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.