Correlation Between Alphabet and Urban Outfitters

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

Diversification Opportunities for Alphabet and Urban Outfitters

0.83

Correlation Coefficient

Alphabet  Urban Outfitters

Very poor diversification

The 3 months correlation between Alphabet and Urban is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Urban Outfitters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Urban Outfitters 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 Urban Outfitters. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Urban Outfitters has no effect on the direction of Alphabet i.e., Alphabet and Urban Outfitters go up and down completely randomly.

Pair Corralation between Alphabet and Urban Outfitters

Given the investment horizon of 90 days Alphabet is expected to generate 2.9 times less return on investment than Urban Outfitters. But when comparing it to its historical volatility, Alphabet Inc Class C is 1.41 times less risky than Urban Outfitters. It trades about 0.17 of its potential returns per unit of risk. Urban Outfitters is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  3,300  in Urban Outfitters on October 8, 2024 and sell it today you would earn a total of  2,200  from holding Urban Outfitters or generate 66.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.77%
Values	Daily Returns

Alphabet Inc Class C  vs.  Urban Outfitters

Alphabet Class C

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

Urban Outfitters

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Urban Outfitters are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Urban Outfitters reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and Urban Outfitters

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

The idea behind Alphabet Inc Class C and Urban Outfitters 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..