Correlation Between Alphabet CDR and Meta CDR

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

By analyzing existing cross correlation between Alphabet CDR (CAD Hedged) and Meta CDR, you can compare the effects of market volatilities on Alphabet CDR and Meta CDR 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 CDR with a short position of Meta CDR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet CDR and Meta CDR.

Diversification Opportunities for Alphabet CDR and Meta CDR

0.84

Correlation Coefficient

Alphabet CDR  Meta CDR

Very poor diversification

The 3 months correlation between Alphabet and Meta is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet CDR (CAD Hedged) and Meta CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meta CDR and Alphabet CDR 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 CDR (CAD Hedged) are associated (or correlated) with Meta CDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meta CDR has no effect on the direction of Alphabet CDR i.e., Alphabet CDR and Meta CDR go up and down completely randomly.

Pair Corralation between Alphabet CDR and Meta CDR

Assuming the 90 days trading horizon Alphabet CDR is expected to generate 1.6 times less return on investment than Meta CDR. But when comparing it to its historical volatility, Alphabet CDR (CAD Hedged) is 1.09 times less risky than Meta CDR. It trades about 0.2 of its potential returns per unit of risk. Meta CDR is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  2,762  in Meta CDR on April 22, 2025 and sell it today you would earn a total of  1,142  from holding Meta CDR or generate 41.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Alphabet CDR (CAD Hedged)  vs.  Meta CDR

Alphabet CDR

Risk-Adjusted Performance

Good

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

Meta CDR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Meta CDR are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Meta CDR displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alphabet CDR and Meta CDR

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

The idea behind Alphabet CDR (CAD Hedged) and Meta CDR 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.