Correlation Between Alphabet and Exxaro Resources

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

Diversification Opportunities for Alphabet and Exxaro Resources

-0.67

Correlation Coefficient

Alphabet  Exxaro Resources

Excellent diversification

The 3 months correlation between Alphabet and Exxaro is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Exxaro Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxaro Resources 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 Exxaro Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxaro Resources has no effect on the direction of Alphabet i.e., Alphabet and Exxaro Resources go up and down completely randomly.

Pair Corralation between Alphabet and Exxaro Resources

Given the investment horizon of 90 days Alphabet is expected to generate 2.83 times less return on investment than Exxaro Resources. But when comparing it to its historical volatility, Alphabet Inc Class C is 4.36 times less risky than Exxaro Resources. It trades about 0.23 of its potential returns per unit of risk. Exxaro Resources Limited is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  914.00  in Exxaro Resources Limited on March 1, 2024 and sell it today you would earn a total of  86.00  from holding Exxaro Resources Limited or generate 9.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	16.13%
Values	Daily Returns

Alphabet Inc Class C  vs.  Exxaro Resources Limited

Alphabet Class C

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

Exxaro Resources

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Exxaro Resources Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, Exxaro Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and Exxaro Resources

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

The idea behind Alphabet Inc Class C and Exxaro Resources Limited 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.