Correlation Between Microsoft Corp and Alibaba Group

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

Diversification Opportunities for Microsoft Corp and Alibaba Group

-0.19
  Correlation Coefficient

Good diversification

The 3 months correlation between Microsoft and Alibaba is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp 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 Microsoft Corp 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 Microsoft Corp 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 Microsoft Corp i.e., Microsoft Corp and Alibaba Group go up and down completely randomly.

Pair Corralation between Microsoft Corp and Alibaba Group

Given the investment horizon of 90 days Microsoft Corp is expected to generate 1.42 times less return on investment than Alibaba Group. But when comparing it to its historical volatility, Microsoft Corp is 2.29 times less risky than Alibaba Group. It trades about 0.09 of its potential returns per unit of risk. Alibaba Group Holding is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  8,799  in Alibaba Group Holding on May 13, 2022 and sell it today you would earn a total of  958.00  from holding Alibaba Group Holding or generate 10.89% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Microsoft Corp  vs.  Alibaba Group Holding

 Performance (%) 
       Timeline  
Microsoft Corp 
Microsoft Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Microsoft Corp may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Microsoft Price Channel

Alibaba Group Holding 
Alibaba Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Group Holding are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting fundamental drivers, Alibaba Group sustained solid returns over the last few months and may actually be approaching a breakup point.

Alibaba Price Channel

Microsoft Corp and Alibaba Group Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft Corp and Alibaba Group

The main advantage of trading using opposite Microsoft Corp and Alibaba Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft Corp 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 Microsoft Corp 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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