Correlation Between Alphabet and SLM Corp

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

Diversification Opportunities for Alphabet and SLM Corp

0.56

Correlation Coefficient

Alphabet  SLM Corp

Very weak diversification

The 3 months correlation between Alphabet and SLM is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and SLM Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SLM Corp 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 SLM Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SLM Corp has no effect on the direction of Alphabet i.e., Alphabet and SLM Corp go up and down completely randomly.

Pair Corralation between Alphabet and SLM Corp

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 1.88 times more return on investment than SLM Corp. However, Alphabet is 1.88 times more volatile than SLM Corp. It trades about 0.16 of its potential returns per unit of risk. SLM Corp is currently generating about 0.09 per unit of risk. If you would invest  15,614  in Alphabet Inc Class C on February 7, 2024 and sell it today you would earn a total of  1,369  from holding Alphabet Inc Class C or generate 8.77% return on investment over 90 days.

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

Alphabet Inc Class C  vs.  SLM Corp

Alphabet Class C

Risk-Adjusted Performance

9 of 100

OK

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

SLM Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SLM Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal essential indicators, SLM Corp displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet and SLM Corp

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

The idea behind Alphabet Inc Class C and SLM Corp 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.