Correlation Between Alphabet and CARPENTER

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

Diversification Opportunities for Alphabet and CARPENTER

0.01

Correlation Coefficient

Alphabet  CARPENTER

Significant diversification

The 3 months correlation between Alphabet and CARPENTER is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and CARPENTER TECHNOLOGY P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CARPENTER TECHNOLOGY 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 CARPENTER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CARPENTER TECHNOLOGY has no effect on the direction of Alphabet i.e., Alphabet and CARPENTER go up and down completely randomly.

Pair Corralation between Alphabet and CARPENTER

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 3.03 times more return on investment than CARPENTER. However, Alphabet is 3.03 times more volatile than CARPENTER TECHNOLOGY P. It trades about 0.11 of its potential returns per unit of risk. CARPENTER TECHNOLOGY P is currently generating about -0.01 per unit of risk. If you would invest  15,760  in Alphabet Inc Class C on September 4, 2024 and sell it today you would earn a total of  1,538  from holding Alphabet Inc Class C or generate 9.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Alphabet Inc Class C  vs.  CARPENTER TECHNOLOGY P

Alphabet Class C

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Alphabet may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CARPENTER TECHNOLOGY

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CARPENTER TECHNOLOGY P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CARPENTER is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alphabet and CARPENTER

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

The idea behind Alphabet Inc Class C and CARPENTER TECHNOLOGY P 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.