Correlation Between Alphabet and Trade Desk

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

Diversification Opportunities for Alphabet and Trade Desk

0.69

Correlation Coefficient

Alphabet  Trade Desk

Poor diversification

The 3 months correlation between Alphabet and Trade is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and The Trade Desk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trade Desk 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 Trade Desk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trade Desk has no effect on the direction of Alphabet i.e., Alphabet and Trade Desk go up and down completely randomly.

Pair Corralation between Alphabet and Trade Desk

Given the investment horizon of 90 days Alphabet is expected to generate 2.78 times less return on investment than Trade Desk. But when comparing it to its historical volatility, Alphabet Inc Class C is 1.5 times less risky than Trade Desk. It trades about 0.06 of its potential returns per unit of risk. The Trade Desk is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  7,872  in The Trade Desk on September 24, 2024 and sell it today you would earn a total of  4,082  from holding The Trade Desk or generate 51.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.65%
Values	Daily Returns

Alphabet Inc Class C  vs.  The Trade Desk

Alphabet Class C

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 12 (%) 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.

Trade Desk

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Trade Desk are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Trade Desk reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and Trade Desk

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

The idea behind Alphabet Inc Class C and The Trade Desk 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.