Correlation Between Amazon and Alibaba Group

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Can any of the company-specific risk be diversified away by investing in both Amazon and Alibaba Group 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 Amazon and Alibaba Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Alibaba Group Holding, you can compare the effects of market volatilities on Amazon and Alibaba Group 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 Amazon with a short position of Alibaba Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Alibaba Group.

Diversification Opportunities for Amazon and Alibaba Group

0.68
  Correlation Coefficient

Poor diversification

The 3 months correlation between Amazon and Alibaba is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Alibaba Group Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alibaba Group Holding and Amazon 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 Amazon Inc are associated (or correlated) with Alibaba Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alibaba Group Holding has no effect on the direction of Amazon i.e., Amazon and Alibaba Group go up and down completely randomly.

Pair Corralation between Amazon and Alibaba Group

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the Alibaba Group. But the stock apears to be less risky and, when comparing its historical volatility, Amazon Inc is 1.69 times less risky than Alibaba Group. The stock trades about -0.12 of its potential returns per unit of risk. The Alibaba Group Holding is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  13,652  in Alibaba Group Holding on February 22, 2022 and sell it today you would lose (4,973)  from holding Alibaba Group Holding or give up 36.43% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  Alibaba Group Holding

 Performance (%) 
      Timeline 
Amazon Inc 
Amazon Performance
0 of 100
Over the last 90 days Amazon Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in June 2022. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Amazon Price Channel

Alibaba Group Holding 
Alibaba Performance
0 of 100
Over the last 90 days Alibaba Group Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in June 2022. The current disturbance may also be a sign of long term up-swing for the company investors.

Alibaba Price Channel

Amazon and Alibaba Group Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Amazon and Alibaba Group

The main advantage of trading using opposite Amazon and Alibaba Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Alibaba Group 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 Alibaba Group will offset losses from the drop in Alibaba Group's long position.
The idea behind Amazon Inc and Alibaba Group Holding 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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