Correlation Between Alibaba Group and Carvana Co

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Can any of the company-specific risk be diversified away by investing in both Alibaba Group and Carvana Co 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 Carvana Co 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 Carvana Co Cl, you can compare the effects of market volatilities on Alibaba Group and Carvana Co 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 Carvana Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alibaba Group and Carvana Co.

Diversification Opportunities for Alibaba Group and Carvana Co

0.23
  Correlation Coefficient

Modest diversification

The 24 months correlation between Alibaba and Carvana is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Carvana Co Cl in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Carvana Co Cl 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 Carvana Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carvana Co Cl has no effect on the direction of Alibaba Group i.e., Alibaba Group and Carvana Co go up and down completely randomly.

Pair Corralation between Alibaba Group and Carvana Co

Given the investment horizon of 90 days Alibaba Group Holding is expected to under-perform the Carvana Co. But the stock apears to be less risky and, when comparing its historical volatility, Alibaba Group Holding is 1.49 times less risky than Carvana Co. The stock trades about -0.03 of its potential returns per unit of risk. The Carvana Co Cl is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  9,919  in Carvana Co Cl on February 15, 2022 and sell it today you would lose (6,088)  from holding Carvana Co Cl or give up 61.38% of portfolio value over 90 days.
Time Period24 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Alibaba Group Holding  vs.  Carvana Co Cl

 Performance (%) 
      Timeline 
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 latest weak performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Alibaba Price Channel

Carvana Co Cl 
Carvana Performance
0 of 100
Over the last 90 days Carvana Co Cl has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Carvana Co is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Carvana Price Channel

Alibaba Group and Carvana Co Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Alibaba Group and Carvana Co

The main advantage of trading using opposite Alibaba Group and Carvana Co positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alibaba Group position performs unexpectedly, Carvana Co 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 Carvana Co will offset losses from the drop in Carvana Co's long position.
The idea behind Alibaba Group Holding and Carvana Co Cl 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.

Carvana Co Cl

Pair trading matchups for Carvana 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.

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