Correlation Between Alphabet and Floating Rate

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

Diversification Opportunities for Alphabet and Floating Rate

0.53

Correlation Coefficient

Alphabet  Floating Rate

Very weak diversification

The 3 months correlation between Alphabet and Floating is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Floating Rate Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Floating Rate 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 Floating Rate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Floating Rate has no effect on the direction of Alphabet i.e., Alphabet and Floating Rate go up and down completely randomly.

Pair Corralation between Alphabet and Floating Rate

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 16.53 times more return on investment than Floating Rate. However, Alphabet is 16.53 times more volatile than Floating Rate Fund. It trades about 0.03 of its potential returns per unit of risk. Floating Rate Fund is currently generating about 0.1 per unit of risk. If you would invest  17,030  in Alphabet Inc Class C on November 29, 2024 and sell it today you would earn a total of  440.00  from holding Alphabet Inc Class C or generate 2.58% return on investment over 90 days.

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

Alphabet Inc Class C  vs.  Floating Rate Fund

Alphabet Class C

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Floating Rate

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Floating Rate Fund are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Floating Rate 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 Floating Rate

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

The idea behind Alphabet Inc Class C and Floating Rate Fund 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.