Correlation Between Facebook and Alphabet

By analyzing existing cross correlation between Facebook and Alphabet Cl C, you can compare the effects of market volatilities on Facebook and Alphabet 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 Facebook with a short position of Alphabet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Facebook and Alphabet.

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

Diversification Opportunities for Facebook and Alphabet

0.94
  Correlation Coefficient
Facebook
Alphabet Cl C

Almost no diversification

The 3 months correlation between Facebook and Alphabet is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Facebook and Alphabet Cl C in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Cl C and Facebook 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 Facebook are associated (or correlated) with Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet Cl C has no effect on the direction of Facebook i.e., Facebook and Alphabet go up and down completely randomly.

Pair Corralation between Facebook and Alphabet

Allowing for the 90-day total investment horizon Facebook is expected to generate 1.36 times less return on investment than Alphabet. In addition to that, Facebook is 1.46 times more volatile than Alphabet Cl C. It trades about 0.1 of its total potential returns per unit of risk. Alphabet Cl C is currently generating about 0.21 per unit of volatility. If you would invest  235,425  in Alphabet Cl C on May 4, 2021 and sell it today you would earn a total of  36,554  from holding Alphabet Cl C or generate 15.53% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Facebook  vs.  Alphabet Cl C

 Performance (%) 
      Timeline 
Facebook 
 Facebook Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Facebook are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental drivers, Facebook may actually be approaching a critical reversion point that can send shares even higher in September 2021.

Facebook Price Channel

Alphabet Cl C 
 Alphabet Performance
15 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Cl C are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Alphabet exhibited solid returns over the last few months and may actually be approaching a breakup point.

Alphabet Price Channel

Facebook and Alphabet Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Facebook and Alphabet

The main advantage of trading using opposite Facebook and Alphabet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Facebook position performs unexpectedly, Alphabet 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 Alphabet will offset losses from the drop in Alphabet's long position.
The idea behind Facebook and Alphabet Cl C 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.

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