Correlation Between Alphabet and American Beacon

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

Diversification Opportunities for Alphabet and American Beacon

AlphabetAmericanDiversified AwayAlphabetAmericanDiversified Away100%
-0.7
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Alphabet and American is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and American Beacon Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Small 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 C are associated (or correlated) with American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Small has no effect on the direction of Alphabet i.e., Alphabet and American Beacon go up and down completely randomly.

Pair Corralation between Alphabet and American Beacon

Given the investment horizon of 90 days Alphabet Inc Class C is expected to under-perform the American Beacon. In addition to that, Alphabet is 2.32 times more volatile than American Beacon Small. It trades about -0.21 of its total potential returns per unit of risk. American Beacon Small is currently generating about -0.23 per unit of volatility. If you would invest  2,492  in American Beacon Small on November 25, 2024 and sell it today you would lose (117.00) from holding American Beacon Small or give up 4.7% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Alphabet Inc Class C  vs.  American Beacon Small

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -10-5051015
JavaScript chart by amCharts 3.21.15GOOG ABSYX
       Timeline  
Alphabet Class C 

Risk-Adjusted Performance

Modest

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Alphabet may actually be approaching a critical reversion point that can send shares even higher in March 2025.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb165170175180185190195200205
American Beacon Small 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days American Beacon Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb2425262728

Alphabet and American Beacon Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-6.54-4.9-3.26-1.61-0.02741.583.254.916.588.24 0.050.100.150.20
JavaScript chart by amCharts 3.21.15GOOG ABSYX
       Returns  

Pair Trading with Alphabet and American Beacon

The main advantage of trading using opposite Alphabet and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet position performs unexpectedly, American Beacon 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 American Beacon will offset losses from the drop in American Beacon's long position.
The idea behind Alphabet Inc Class C and American Beacon Small 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.

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