Correlation Between Alibaba Group and Compania
Can any of the company-specific risk be diversified away by investing in both Alibaba Group and Compania 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 Compania into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alibaba Group Holding and Compania de Transporte, you can compare the effects of market volatilities on Alibaba Group and Compania 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 Compania. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alibaba Group and Compania.
Diversification Opportunities for Alibaba Group and Compania
-0.24 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Alibaba and Compania is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Compania de Transporte in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compania de Transporte 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 Holding are associated (or correlated) with Compania. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compania de Transporte has no effect on the direction of Alibaba Group i.e., Alibaba Group and Compania go up and down completely randomly.
Pair Corralation between Alibaba Group and Compania
Assuming the 90 days trading horizon Alibaba Group is expected to generate 3.36 times less return on investment than Compania. But when comparing it to its historical volatility, Alibaba Group Holding is 1.2 times less risky than Compania. It trades about 0.06 of its potential returns per unit of risk. Compania de Transporte is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 171,000 in Compania de Transporte on November 2, 2024 and sell it today you would earn a total of 111,000 from holding Compania de Transporte or generate 64.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.04% |
| Values | Daily Returns |
Alibaba Group Holding vs. Compania de Transporte
Performance |
| Timeline |
| Alibaba Group Holding |
| Compania de Transporte |
Alibaba Group and Compania Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alibaba Group and Compania
The main advantage of trading using opposite Alibaba Group and Compania positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alibaba Group position performs unexpectedly, Compania 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 Compania will offset losses from the drop in Compania's long position.| Alibaba Group vs. Transportadora de Gas | Alibaba Group vs. Harmony Gold Mining | Alibaba Group vs. Compania de Transporte |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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