Correlation Between Alibaba Health and Alternative Energy

Can any of the company-specific risk be diversified away by investing in both Alibaba Health and Alternative Energy 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 Health and Alternative Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alibaba Health Information and Alternative Energy, you can compare the effects of market volatilities on Alibaba Health and Alternative Energy 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 Health with a short position of Alternative Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alibaba Health and Alternative Energy.

Diversification Opportunities for Alibaba Health and Alternative Energy

-0.35

Correlation Coefficient

Alibaba Health  Alternative Energy

Very good diversification

The 3 months correlation between Alibaba and Alternative is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Health Information and Alternative Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alternative Energy and Alibaba Health 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 Health Information are associated (or correlated) with Alternative Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alternative Energy has no effect on the direction of Alibaba Health i.e., Alibaba Health and Alternative Energy go up and down completely randomly.

Pair Corralation between Alibaba Health and Alternative Energy

Assuming the 90 days horizon Alibaba Health Information is expected to generate 0.64 times more return on investment than Alternative Energy. However, Alibaba Health Information is 1.56 times less risky than Alternative Energy. It trades about 0.08 of its potential returns per unit of risk. Alternative Energy is currently generating about -0.12 per unit of risk. If you would invest  752.00  in Alibaba Health Information on September 3, 2024 and sell it today you would earn a total of  170.00  from holding Alibaba Health Information or generate 22.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Alibaba Health Information  vs.  Alternative Energy

Alibaba Health Infor

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Health Information are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, Alibaba Health showed solid returns over the last few months and may actually be approaching a breakup point.

Alternative Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alternative Energy 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 technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Alibaba Health and Alternative Energy

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

The idea behind Alibaba Health Information and Alternative Energy 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.