Correlation Between Alibaba Group and MP Materials
Can any of the company-specific risk be diversified away by investing in both Alibaba Group and MP Materials 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 MP Materials 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 MP Materials Corp, you can compare the effects of market volatilities on Alibaba Group and MP Materials 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 MP Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alibaba Group and MP Materials.
Diversification Opportunities for Alibaba Group and MP Materials
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Alibaba and M2PM34 is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and MP Materials Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MP Materials Corp 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 MP Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MP Materials Corp has no effect on the direction of Alibaba Group i.e., Alibaba Group and MP Materials go up and down completely randomly.
Pair Corralation between Alibaba Group and MP Materials
Assuming the 90 days trading horizon Alibaba Group Holding is expected to under-perform the MP Materials. But the stock apears to be less risky and, when comparing its historical volatility, Alibaba Group Holding is 3.76 times less risky than MP Materials. The stock trades about -0.27 of its potential returns per unit of risk. The MP Materials Corp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 2,368 in MP Materials Corp on October 11, 2024 and sell it today you would lose (19.00) from holding MP Materials Corp or give up 0.8% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Alibaba Group Holding vs. MP Materials Corp
Performance |
| Timeline |
| Alibaba Group Holding |
| MP Materials Corp |
Alibaba Group and MP Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alibaba Group and MP Materials
The main advantage of trading using opposite Alibaba Group and MP Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alibaba Group position performs unexpectedly, MP Materials 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 MP Materials will offset losses from the drop in MP Materials' long position.| Alibaba Group vs. Micron Technology | Alibaba Group vs. Spotify Technology SA | Alibaba Group vs. Microchip Technology Incorporated | Alibaba Group vs. Liberty Broadband |
| MP Materials vs. Taiwan Semiconductor Manufacturing | MP Materials vs. Apple Inc | MP Materials vs. Alibaba Group Holding | MP Materials vs. Banco Santander Chile |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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