Correlation Between Alphabet and Pershing Square

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

Diversification Opportunities for Alphabet and Pershing Square

0.15

Correlation Coefficient

Alphabet  Pershing Square

Average diversification

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

Pair Corralation between Alphabet and Pershing Square

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 1.34 times more return on investment than Pershing Square. However, Alphabet is 1.34 times more volatile than Pershing Square Holdings. It trades about 0.18 of its potential returns per unit of risk. Pershing Square Holdings is currently generating about 0.08 per unit of risk. If you would invest  15,881  in Alphabet Inc Class C on September 15, 2024 and sell it today you would earn a total of  3,257  from holding Alphabet Inc Class C or generate 20.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Alphabet Inc Class C  vs.  Pershing Square Holdings

Alphabet Class C

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 14 (%) 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.

Pershing Square Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pershing Square Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Pershing Square is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Alphabet and Pershing Square

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

The idea behind Alphabet Inc Class C and Pershing Square Holdings 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.