Correlation Between Premium Brands and Alphabet

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

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

Diversification Opportunities for Premium Brands and Alphabet

-0.5

Correlation Coefficient

Premium Brands  Alphabet

Very good diversification

The 3 months correlation between Premium and Alphabet is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Premium Brands Holdings and Alphabet Inc CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet CDR and Premium Brands 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 Premium Brands Holdings 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 Premium Brands i.e., Premium Brands and Alphabet go up and down completely randomly.

Pair Corralation between Premium Brands and Alphabet

Assuming the 90 days trading horizon Premium Brands Holdings is expected to under-perform the Alphabet. But the stock apears to be less risky and, when comparing its historical volatility, Premium Brands Holdings is 1.19 times less risky than Alphabet. The stock trades about -0.13 of its potential returns per unit of risk. The Alphabet Inc CDR is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,740  in Alphabet Inc CDR on October 23, 2024 and sell it today you would earn a total of  574.00  from holding Alphabet Inc CDR or generate 20.95% return on investment over 90 days.

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

Premium Brands Holdings  vs.  Alphabet Inc CDR

Premium Brands Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Premium Brands Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Alphabet CDR

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc CDR are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Alphabet exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Premium Brands and Alphabet

The main advantage of trading using opposite Premium Brands and Alphabet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Premium Brands 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 Premium Brands Holdings 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.