Correlation Between Alphabet and EXXON

Can any of the company-specific risk be diversified away by investing in both Alphabet and EXXON 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 EXXON 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 EXXON MOBIL P, you can compare the effects of market volatilities on Alphabet and EXXON 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 EXXON. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and EXXON.

Diversification Opportunities for Alphabet and EXXON

-0.57

Correlation Coefficient

Alphabet  EXXON

Excellent diversification

The 3 months correlation between Alphabet and EXXON is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and EXXON MOBIL P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EXXON MOBIL P 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 EXXON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EXXON MOBIL P has no effect on the direction of Alphabet i.e., Alphabet and EXXON go up and down completely randomly.

Pair Corralation between Alphabet and EXXON

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 1.69 times more return on investment than EXXON. However, Alphabet is 1.69 times more volatile than EXXON MOBIL P. It trades about 0.12 of its potential returns per unit of risk. EXXON MOBIL P is currently generating about 0.01 per unit of risk. If you would invest  16,296  in Alphabet Inc Class C on August 15, 2024 and sell it today you would earn a total of  1,753  from holding Alphabet Inc Class C or generate 10.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

Alphabet Inc Class C  vs.  EXXON MOBIL P

Alphabet Class C

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 9 (%) 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 December 2024.

EXXON MOBIL P

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in EXXON MOBIL P are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, EXXON is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alphabet and EXXON

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

The idea behind Alphabet Inc Class C and EXXON MOBIL P 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.