Correlation Between Alibaba Group and BYD Company
Can any of the company-specific risk be diversified away by investing in both Alibaba Group and BYD Company 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 Alibaba Group and BYD Company into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alibaba Group Holdings and BYD Company Limited, you can compare the effects of market volatilities on Alibaba Group and BYD Company 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 Alibaba Group with a short position of BYD Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alibaba Group and BYD Company.
Diversification Opportunities for Alibaba Group and BYD Company
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Alibaba and BYD is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holdings and BYD Company Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD Limited and Alibaba Group 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 Alibaba Group Holdings are associated (or correlated) with BYD Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD Limited has no effect on the direction of Alibaba Group i.e., Alibaba Group and BYD Company go up and down completely randomly.
Pair Corralation between Alibaba Group and BYD Company
Assuming the 90 days trading horizon Alibaba Group is expected to generate 2.6 times less return on investment than BYD Company. But when comparing it to its historical volatility, Alibaba Group Holdings is 1.16 times less risky than BYD Company. It trades about 0.05 of its potential returns per unit of risk. BYD Company Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 2,295 in BYD Company Limited on August 28, 2024 and sell it today you would earn a total of 907.00 from holding BYD Company Limited or generate 39.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.22% |
| Values | Daily Returns |
Alibaba Group Holdings vs. BYD Company Limited
Performance |
| Timeline |
| Alibaba Group Holdings |
| BYD Limited |
Alibaba Group and BYD Company Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alibaba Group and BYD Company
The main advantage of trading using opposite Alibaba Group and BYD Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alibaba Group position performs unexpectedly, BYD Company 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 BYD Company will offset losses from the drop in BYD Company's long position.The idea behind Alibaba Group Holdings and BYD Company 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.| BYD Company vs. Xiaomi | BYD Company vs. Geely Automobile Holdings | BYD Company vs. Nel ASA | BYD Company vs. JinkoSolar Holding Co |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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