Correlation Between Alphabet and 3i Group

Can any of the company-specific risk be diversified away by investing in both Alphabet and 3i Group 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 3i Group 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 3i Group PLC, you can compare the effects of market volatilities on Alphabet and 3i Group 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 3i Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and 3i Group.

Diversification Opportunities for Alphabet and 3i Group

0.71

Correlation Coefficient

Alphabet  3i Group

Poor diversification

The 3 months correlation between Alphabet and TGOPY is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and 3i Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3i Group PLC 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 3i Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 3i Group PLC has no effect on the direction of Alphabet i.e., Alphabet and 3i Group go up and down completely randomly.

Pair Corralation between Alphabet and 3i Group

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 3.17 times more return on investment than 3i Group. However, Alphabet is 3.17 times more volatile than 3i Group PLC. It trades about 0.1 of its potential returns per unit of risk. 3i Group PLC is currently generating about 0.14 per unit of risk. If you would invest  15,650  in Alphabet Inc Class C on February 1, 2024 and sell it today you would earn a total of  814.00  from holding Alphabet Inc Class C or generate 5.2% return on investment over 90 days.

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

Alphabet Inc Class C  vs.  3i Group PLC

Alphabet Class C

Risk-Adjusted Performance

9 of 100

Good

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 weak basic indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

3i Group PLC

Risk-Adjusted Performance

17 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in 3i Group PLC are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, 3i Group showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and 3i Group

The main advantage of trading using opposite Alphabet and 3i Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet position performs unexpectedly, 3i Group 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 3i Group will offset losses from the drop in 3i Group's long position.

The idea behind Alphabet Inc Class C and 3i Group PLC 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.