Correlation Between Alphabet and Sino AG
Can any of the company-specific risk be diversified away by investing in both Alphabet and Sino AG 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 Sino AG 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 Sino AG, you can compare the effects of market volatilities on Alphabet and Sino AG 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 Sino AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and Sino AG.
Diversification Opportunities for Alphabet and Sino AG
Poor diversification
The 3 months correlation between Alphabet and Sino is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Sino AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sino AG 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 Sino AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sino AG has no effect on the direction of Alphabet i.e., Alphabet and Sino AG go up and down completely randomly.
Pair Corralation between Alphabet and Sino AG
Given the investment horizon of 90 days Alphabet Inc Class C is expected to under-perform the Sino AG. But the stock apears to be less risky and, when comparing its historical volatility, Alphabet Inc Class C is 2.34 times less risky than Sino AG. The stock trades about -0.09 of its potential returns per unit of risk. The Sino AG is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest 6,550 in Sino AG on October 15, 2024 and sell it today you would earn a total of 1,300 from holding Sino AG or generate 19.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 88.89% |
| Values | Daily Returns |
Alphabet Inc Class C vs. Sino AG
Performance |
| Timeline |
| Alphabet Class C |
| Sino AG |
Alphabet and Sino AG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alphabet and Sino AG
The main advantage of trading using opposite Alphabet and Sino AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet position performs unexpectedly, Sino AG 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 Sino AG will offset losses from the drop in Sino AG's long position.The idea behind Alphabet Inc Class C and Sino AG 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.| Citigroup vs. Sino AG | ||
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The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Sino AG as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Sino AG's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Sino AG's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Sino AG.
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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