Correlation Between Alibaba Group and Rolls Royce

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

Diversification Opportunities for Alibaba Group and Rolls Royce

0.0

Correlation Coefficient

Alibaba Group  Rolls Royce

Pay attention - limited upside

The 3 months correlation between Alibaba and Rolls is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Rolls Royce Holdings plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rolls Royce Holdings 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 Rolls Royce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rolls Royce Holdings has no effect on the direction of Alibaba Group i.e., Alibaba Group and Rolls Royce go up and down completely randomly.

Pair Corralation between Alibaba Group and Rolls Royce

If you would invest  689.00  in Rolls Royce Holdings plc on December 29, 2024 and sell it today you would earn a total of  272.00  from holding Rolls Royce Holdings plc or generate 39.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	1.59%
Values	Daily Returns

Alibaba Group Holding  vs.  Rolls Royce Holdings plc

Alibaba Group Holding

Risk-Adjusted Performance

Solid

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.

Rolls Royce Holdings

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings plc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Rolls Royce reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alibaba Group and Rolls Royce

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

The idea behind Alibaba Group Holding and Rolls Royce Holdings plc 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.