Correlation Between Alphabet and Vanguard

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

Diversification Opportunities for Alphabet and Vanguard

0.74

Correlation Coefficient

Alphabet  Vanguard

Poor diversification

The 3 months correlation between Alphabet and Vanguard is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Vanguard SP Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP Small 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 Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP Small has no effect on the direction of Alphabet i.e., Alphabet and Vanguard go up and down completely randomly.

Pair Corralation between Alphabet and Vanguard

Given the investment horizon of 90 days Alphabet Inc Class C is expected to under-perform the Vanguard. In addition to that, Alphabet is 1.1 times more volatile than Vanguard SP Small Cap. It trades about -0.02 of its total potential returns per unit of risk. Vanguard SP Small Cap is currently generating about 0.3 per unit of volatility. If you would invest  11,607  in Vanguard SP Small Cap on September 2, 2024 and sell it today you would earn a total of  1,254  from holding Vanguard SP Small Cap or generate 10.8% return on investment over 90 days.

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

Alphabet Inc Class C  vs.  Vanguard SP Small Cap

Alphabet Class C

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Alphabet may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard SP Small

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP Small Cap are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Vanguard may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Alphabet and Vanguard

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

The idea behind Alphabet Inc Class C and Vanguard SP Small Cap 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.