Correlation Between Alphabet and Autohome ADR

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

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

Diversification Opportunities for Alphabet and Autohome ADR

-0.51

Correlation Coefficient

Alphabet  Autohome ADR

Excellent diversification

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

Pair Corralation between Alphabet and Autohome ADR

Assuming the 90 days trading horizon Alphabet Class A is expected to generate 0.99 times more return on investment than Autohome ADR. However, Alphabet Class A is 1.01 times less risky than Autohome ADR. It trades about 0.4 of its potential returns per unit of risk. Autohome ADR is currently generating about -0.09 per unit of risk. If you would invest  15,816  in Alphabet Class A on September 23, 2024 and sell it today you would earn a total of  2,546  from holding Alphabet Class A or generate 16.1% return on investment over 90 days.

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

Alphabet Class A  vs.  Autohome ADR

Alphabet Class A

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Class A are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Alphabet exhibited solid returns over the last few months and may actually be approaching a breakup point.

Autohome ADR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Autohome ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, Autohome ADR is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Alphabet and Autohome ADR

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

The idea behind Alphabet Class A and Autohome 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.