Correlation Between Alibaba Group and Evolution Petroleum

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

Diversification Opportunities for Alibaba Group and Evolution Petroleum

-0.7

Correlation Coefficient

Alibaba Group  Evolution Petroleum

Excellent diversification

The 3 months correlation between Alibaba and Evolution is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Evolution Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolution Petroleum 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 Evolution Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolution Petroleum has no effect on the direction of Alibaba Group i.e., Alibaba Group and Evolution Petroleum go up and down completely randomly.

Pair Corralation between Alibaba Group and Evolution Petroleum

Assuming the 90 days horizon Alibaba Group Holding is expected to generate 2.06 times more return on investment than Evolution Petroleum. However, Alibaba Group is 2.06 times more volatile than Evolution Petroleum. It trades about 0.21 of its potential returns per unit of risk. Evolution Petroleum is currently generating about 0.01 per unit of risk. If you would invest  1,015  in Alibaba Group Holding on December 23, 2024 and sell it today you would earn a total of  560.00  from holding Alibaba Group Holding or generate 55.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Alibaba Group Holding  vs.  Evolution Petroleum

Alibaba Group Holding

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Group Holding are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Alibaba Group reported solid returns over the last few months and may actually be approaching a breakup point.

Evolution Petroleum

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Evolution Petroleum are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Evolution Petroleum is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Alibaba Group and Evolution Petroleum

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

The idea behind Alibaba Group Holding and Evolution Petroleum 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 the Insider Screener module to find insiders across different sectors to evaluate their impact on performance.