Correlation Between Alphabet and Big 5

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Can any of the company-specific risk be diversified away by investing in both Alphabet and Big 5 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 Big 5 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alphabet Cl A and Big 5 Sporting, you can compare the effects of market volatilities on Alphabet and Big 5 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 Big 5. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and Big 5.

Diversification Opportunities for Alphabet and Big 5

0.53
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Alphabet and Big 5 is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Cl A and Big 5 Sporting in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big 5 Sporting 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 Cl A are associated (or correlated) with Big 5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big 5 Sporting has no effect on the direction of Alphabet i.e., Alphabet and Big 5 go up and down completely randomly.

Pair Corralation between Alphabet and Big 5

Assuming the 90 days horizon Alphabet Cl A is expected to generate 0.92 times more return on investment than Big 5. However, Alphabet Cl A is 1.09 times less risky than Big 5. It trades about -0.28 of its potential returns per unit of risk. Big 5 Sporting is currently generating about -0.34 per unit of risk. If you would invest  11,034  in Alphabet Cl A on June 27, 2022 and sell it today you would lose (1,160)  from holding Alphabet Cl A or give up 10.51% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Alphabet Cl A  vs.  Big 5 Sporting

 Performance (%) 
       Timeline  
Alphabet Cl A 
Alphabet Performance
0 of 100
Over the last 90 days Alphabet Cl A has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's technical and fundamental indicators remain relatively steady which may send shares a bit higher in October 2022. The new chaos may also be a sign of medium-term up-swing for the company stakeholders.

Alphabet Price Channel

Big 5 Sporting 
Big 5 Performance
0 of 100
Over the last 90 days Big 5 Sporting has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, Big 5 is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Big 5 Price Channel

Alphabet and Big 5 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alphabet and Big 5

The main advantage of trading using opposite Alphabet and Big 5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet position performs unexpectedly, Big 5 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 Big 5 will offset losses from the drop in Big 5's long position.
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The idea behind Alphabet Cl A and Big 5 Sporting 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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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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.

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