Correlation Between Alphabet and Meta Platforms

Can any of the company-specific risk be diversified away by investing in both Alphabet and Meta Platforms 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 Meta Platforms into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alphabet Inc Class A and Meta Platforms, you can compare the effects of market volatilities on Alphabet and Meta Platforms 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 Meta Platforms. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and Meta Platforms.

Diversification Opportunities for Alphabet and Meta Platforms

-0.51

Correlation Coefficient

Alphabet  Meta Platforms

Excellent diversification

The 3 months correlation between Alphabet and Meta is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class A and Meta Platforms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meta Platforms 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 A are associated (or correlated) with Meta Platforms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meta Platforms has no effect on the direction of Alphabet i.e., Alphabet and Meta Platforms go up and down completely randomly.

Pair Corralation between Alphabet and Meta Platforms

If you would invest  15,549  in Alphabet Inc Class A on January 30, 2024 and sell it today you would earn a total of  1,646  from holding Alphabet Inc Class A or generate 10.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	4.55%
Values	Daily Returns

Alphabet Inc Class A  vs.  Meta Platforms

Alphabet Class A

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class A are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady technical and fundamental indicators, Alphabet disclosed solid returns over the last few months and may actually be approaching a breakup point.

Meta Platforms

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Meta Platforms has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Meta Platforms 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 Meta Platforms

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

The idea behind Alphabet Inc Class A and Meta Platforms 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.