Correlation Between Alphabet and Xtrackers Nikkei

Can any of the company-specific risk be diversified away by investing in both Alphabet and Xtrackers Nikkei 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 Xtrackers Nikkei 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 Xtrackers Nikkei 225, you can compare the effects of market volatilities on Alphabet and Xtrackers Nikkei 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 Xtrackers Nikkei. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and Xtrackers Nikkei.

Diversification Opportunities for Alphabet and Xtrackers Nikkei

0.38

Correlation Coefficient

Alphabet  Xtrackers Nikkei

Weak diversification

The 3 months correlation between Alphabet and Xtrackers is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Xtrackers Nikkei 225 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers Nikkei 225 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 Xtrackers Nikkei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers Nikkei 225 has no effect on the direction of Alphabet i.e., Alphabet and Xtrackers Nikkei go up and down completely randomly.

Pair Corralation between Alphabet and Xtrackers Nikkei

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 1.2 times more return on investment than Xtrackers Nikkei. However, Alphabet is 1.2 times more volatile than Xtrackers Nikkei 225. It trades about 0.08 of its potential returns per unit of risk. Xtrackers Nikkei 225 is currently generating about 0.02 per unit of risk. If you would invest  15,840  in Alphabet Inc Class C on September 2, 2024 and sell it today you would earn a total of  1,209  from holding Alphabet Inc Class C or generate 7.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Alphabet Inc Class C  vs.  Xtrackers Nikkei 225

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.

Xtrackers Nikkei 225

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers Nikkei 225 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward-looking indicators, Xtrackers Nikkei is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Alphabet and Xtrackers Nikkei

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

The idea behind Alphabet Inc Class C and Xtrackers Nikkei 225 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.