Correlation Between Alphabet and Telecom

Can any of the company-specific risk be diversified away by investing in both Alphabet and Telecom 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 Telecom into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alphabet Inc Class A and Telecom Italia Capital, you can compare the effects of market volatilities on Alphabet and Telecom 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 Telecom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and Telecom.

Diversification Opportunities for Alphabet and Telecom

0.22

Correlation Coefficient

Alphabet  Telecom

Modest diversification

The 3 months correlation between Alphabet and Telecom is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class A and Telecom Italia Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telecom Italia Capital 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 A are associated (or correlated) with Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telecom Italia Capital has no effect on the direction of Alphabet i.e., Alphabet and Telecom go up and down completely randomly.

Pair Corralation between Alphabet and Telecom

Assuming the 90 days horizon Alphabet Inc Class A is expected to generate 1.23 times more return on investment than Telecom. However, Alphabet is 1.23 times more volatile than Telecom Italia Capital. It trades about 0.16 of its potential returns per unit of risk. Telecom Italia Capital is currently generating about -0.14 per unit of risk. If you would invest  16,653  in Alphabet Inc Class A on October 26, 2024 and sell it today you would earn a total of  3,145  from holding Alphabet Inc Class A or generate 18.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Alphabet Inc Class A  vs.  Telecom Italia Capital

Alphabet Class A

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class A are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile technical and fundamental indicators, Alphabet disclosed solid returns over the last few months and may actually be approaching a breakup point.

Telecom Italia Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telecom Italia Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for Telecom Italia Capital investors.

Pair Trading with Alphabet and Telecom

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

The idea behind Alphabet Inc Class A and Telecom Italia Capital 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.