Correlation Between Alibaba Group and Zalando SE
Can any of the company-specific risk be diversified away by investing in both Alibaba Group and Zalando SE 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 Zalando SE 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 Zalando SE, you can compare the effects of market volatilities on Alibaba Group and Zalando SE 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 Zalando SE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alibaba Group and Zalando SE.
Diversification Opportunities for Alibaba Group and Zalando SE
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Alibaba and Zalando is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holdings and Zalando SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zalando SE 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 Zalando SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zalando SE has no effect on the direction of Alibaba Group i.e., Alibaba Group and Zalando SE go up and down completely randomly.
Pair Corralation between Alibaba Group and Zalando SE
Assuming the 90 days trading horizon Alibaba Group Holdings is expected to under-perform the Zalando SE. But the stock apears to be less risky and, when comparing its historical volatility, Alibaba Group Holdings is 1.1 times less risky than Zalando SE. The stock trades about -0.22 of its potential returns per unit of risk. The Zalando SE is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 2,762 in Zalando SE on September 1, 2024 and sell it today you would earn a total of 180.00 from holding Zalando SE or generate 6.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Alibaba Group Holdings vs. Zalando SE
Performance |
| Timeline |
| Alibaba Group Holdings |
| Zalando SE |
Alibaba Group and Zalando SE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alibaba Group and Zalando SE
The main advantage of trading using opposite Alibaba Group and Zalando SE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alibaba Group position performs unexpectedly, Zalando SE 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 Zalando SE will offset losses from the drop in Zalando SE's long position.| Alibaba Group vs. Tencent Holdings | Alibaba Group vs. Amazon Inc | Alibaba Group vs. Microsoft | Alibaba Group vs. Apple Inc |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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