Correlation Between Maple Leaf and Alphabet

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

By analyzing existing cross correlation between Maple Leaf Foods and Alphabet Inc CDR, you can compare the effects of market volatilities on Maple Leaf and Alphabet 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 Maple Leaf with a short position of Alphabet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Maple Leaf and Alphabet.

Diversification Opportunities for Maple Leaf and Alphabet

0.25

Correlation Coefficient

Maple Leaf  Alphabet

Modest diversification

The 3 months correlation between Maple and Alphabet is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Maple Leaf Foods and Alphabet Inc CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet CDR and Maple Leaf 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 Maple Leaf Foods are associated (or correlated) with Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet CDR has no effect on the direction of Maple Leaf i.e., Maple Leaf and Alphabet go up and down completely randomly.

Pair Corralation between Maple Leaf and Alphabet

Assuming the 90 days trading horizon Maple Leaf is expected to generate 35.62 times less return on investment than Alphabet. But when comparing it to its historical volatility, Maple Leaf Foods is 1.05 times less risky than Alphabet. It trades about 0.01 of its potential returns per unit of risk. Alphabet Inc CDR is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,654  in Alphabet Inc CDR on September 15, 2024 and sell it today you would earn a total of  568.00  from holding Alphabet Inc CDR or generate 21.4% return on investment over 90 days.

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

Maple Leaf Foods  vs.  Alphabet Inc CDR

Maple Leaf Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Maple Leaf Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Maple Leaf is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Alphabet CDR

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc CDR are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Alphabet exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Maple Leaf and Alphabet

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

The idea behind Maple Leaf Foods and Alphabet Inc CDR 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.