Correlation Between Alibaba Group and Parts ID

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

Diversification Opportunities for Alibaba Group and Parts ID

-0.08
  Correlation Coefficient

Good diversification

The 3 months correlation between Alibaba and Parts is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Parts ID in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parts ID 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 Parts ID. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parts ID has no effect on the direction of Alibaba Group i.e., Alibaba Group and Parts ID go up and down completely randomly.

Pair Corralation between Alibaba Group and Parts ID

Given the investment horizon of 90 days Alibaba Group Holding is expected to generate 0.64 times more return on investment than Parts ID. However, Alibaba Group Holding is 1.57 times less risky than Parts ID. It trades about -0.03 of its potential returns per unit of risk. Parts ID is currently generating about -0.05 per unit of risk. If you would invest  25,397  in Alibaba Group Holding on April 6, 2022 and sell it today you would lose (13,719)  from holding Alibaba Group Holding or give up 54.02% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy99.16%
ValuesDaily Returns

Alibaba Group Holding  vs.  Parts ID

 Performance (%) 
      Timeline 
Alibaba Group Holding 
Alibaba Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Group Holding are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Alibaba Group sustained solid returns over the last few months and may actually be approaching a breakup point.

Alibaba Price Channel

Parts ID 
Parts Performance
0 of 100
Over the last 90 days Parts ID has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in August 2022. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Parts Price Channel

Alibaba Group and Parts ID Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Alibaba Group and Parts ID

The main advantage of trading using opposite Alibaba Group and Parts ID positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alibaba Group position performs unexpectedly, Parts ID 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 Parts ID will offset losses from the drop in Parts ID's long position.
The idea behind Alibaba Group Holding and Parts ID 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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