Correlation Between Apple and Alphabet
Can any of the company-specific risk be diversified away by investing in both Apple 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 Apple and Alphabet into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Apple Inc and Alphabet, you can compare the effects of market volatilities on Apple 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 Apple with a short position of Alphabet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Apple and Alphabet.
Diversification Opportunities for Apple and Alphabet
Poor diversification
The 3 months correlation between Apple and Alphabet is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and Alphabet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet and Apple 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 Apple Inc 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 has no effect on the direction of Apple i.e., Apple and Alphabet go up and down completely randomly.
Pair Corralation between Apple and Alphabet
Assuming the 90 days trading horizon Apple is expected to generate 1.08 times less return on investment than Alphabet. But when comparing it to its historical volatility, Apple Inc is 1.31 times less risky than Alphabet. It trades about 0.11 of its potential returns per unit of risk. Alphabet is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 3,952 in Alphabet on August 26, 2024 and sell it today you would earn a total of 4,047 from holding Alphabet or generate 102.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Apple Inc vs. Alphabet
Performance |
| Timeline |
| Apple Inc |
| Alphabet |
Apple and Alphabet Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Apple and Alphabet
The main advantage of trading using opposite Apple and Alphabet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple 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.| Apple vs. Tyson Foods | Apple vs. Take Two Interactive Software | Apple vs. Charter Communications | Apple vs. METISA Metalrgica Timboense |
| Alphabet vs. Paycom Software | Alphabet vs. Technos SA | Alphabet vs. BIONTECH SE DRN | Alphabet vs. GP Investments |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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