Correlation Between Alibaba Health and Nova Cannabis

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

Diversification Opportunities for Alibaba Health and Nova Cannabis

0.72

Correlation Coefficient

Alibaba Health  Nova Cannabis

Poor diversification

The 3 months correlation between Alibaba and Nova is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Health Information and Nova Cannabis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova Cannabis 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 Nova Cannabis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova Cannabis has no effect on the direction of Alibaba Health i.e., Alibaba Health and Nova Cannabis go up and down completely randomly.

Pair Corralation between Alibaba Health and Nova Cannabis

Assuming the 90 days horizon Alibaba Health Information is expected to generate 9.82 times more return on investment than Nova Cannabis. However, Alibaba Health is 9.82 times more volatile than Nova Cannabis. It trades about 0.08 of its potential returns per unit of risk. Nova Cannabis is currently generating about -0.06 per unit of risk. If you would invest  752.00  in Alibaba Health Information on August 31, 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 Together
Strength	Significant
Accuracy	58.73%
Values	Daily Returns

Alibaba Health Information  vs.  Nova Cannabis

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.

Nova Cannabis

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nova Cannabis has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Nova Cannabis 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 Health and Nova Cannabis

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

The idea behind Alibaba Health Information and Nova Cannabis 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.