Correlation Between Alphabet and Sanofi ADR

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

Diversification Opportunities for Alphabet and Sanofi ADR

0.24

Correlation Coefficient

Alphabet  Sanofi ADR

Modest diversification

The 3 months correlation between Alphabet and Sanofi is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Sanofi ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sanofi ADR 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 Sanofi ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sanofi ADR has no effect on the direction of Alphabet i.e., Alphabet and Sanofi ADR go up and down completely randomly.

Pair Corralation between Alphabet and Sanofi ADR

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 1.48 times more return on investment than Sanofi ADR. However, Alphabet is 1.48 times more volatile than Sanofi ADR. It trades about 0.19 of its potential returns per unit of risk. Sanofi ADR is currently generating about 0.14 per unit of risk. If you would invest  15,614  in Alphabet Inc Class C on February 8, 2024 and sell it today you would earn a total of  1,684  from holding Alphabet Inc Class C or generate 10.79% return on investment over 90 days.

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

Alphabet Inc Class C  vs.  Sanofi ADR

Alphabet Class C

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

Sanofi ADR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sanofi ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Sanofi ADR may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Alphabet and Sanofi ADR

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

The idea behind Alphabet Inc Class C and Sanofi ADR 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.