Correlation Between Alibaba Group and Occidental Petroleum

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

Diversification Opportunities for Alibaba Group and Occidental Petroleum

0.43

Correlation Coefficient

Alibaba Group  Occidental Petroleum

Very weak diversification

The 3 months correlation between Alibaba and Occidental is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Occidental Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Occidental 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 Occidental Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Occidental Petroleum has no effect on the direction of Alibaba Group i.e., Alibaba Group and Occidental Petroleum go up and down completely randomly.

Pair Corralation between Alibaba Group and Occidental Petroleum

Assuming the 90 days horizon Alibaba Group Holding is expected to generate 1.66 times more return on investment than Occidental Petroleum. However, Alibaba Group is 1.66 times more volatile than Occidental Petroleum. It trades about -0.01 of its potential returns per unit of risk. Occidental Petroleum is currently generating about -0.23 per unit of risk. If you would invest  1,003  in Alibaba Group Holding on September 23, 2024 and sell it today you would lose (15.00) from holding Alibaba Group Holding or give up 1.5% of portfolio value over 90 days.

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

Alibaba Group Holding  vs.  Occidental Petroleum

Alibaba Group Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alibaba Group Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Alibaba Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Occidental Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Occidental Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Occidental Petroleum is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Alibaba Group and Occidental Petroleum

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

The idea behind Alibaba Group Holding and Occidental 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.

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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.