Correlation Between Alphabet and SPDR Series

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

Diversification Opportunities for Alphabet and SPDR Series

0.19

Correlation Coefficient

Alphabet  SPDR Series

Average diversification

The 3 months correlation between Alphabet and SPDR is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and SPDR Series Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Series Trust 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 SPDR Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Series Trust has no effect on the direction of Alphabet i.e., Alphabet and SPDR Series go up and down completely randomly.

Pair Corralation between Alphabet and SPDR Series

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 1.04 times more return on investment than SPDR Series. However, Alphabet is 1.04 times more volatile than SPDR Series Trust. It trades about 0.1 of its potential returns per unit of risk. SPDR Series Trust is currently generating about 0.03 per unit of risk. If you would invest  8,848  in Alphabet Inc Class C on September 29, 2024 and sell it today you would earn a total of  10,556  from holding Alphabet Inc Class C or generate 119.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Alphabet Inc Class C  vs.  SPDR Series Trust

Alphabet Class C

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 11 (%) 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.

SPDR Series Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR Series Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, SPDR Series is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alphabet and SPDR Series

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

The idea behind Alphabet Inc Class C and SPDR Series Trust 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 Global Correlations module to find global opportunities by holding instruments from different markets.