Correlation Between Alibaba Group and Amazon

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

Diversification Opportunities for Alibaba Group and Amazon

-0.53

Correlation Coefficient

Alibaba Group  Amazon

Excellent diversification

The 3 months correlation between Alibaba and Amazon is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Alibaba Group i.e., Alibaba Group and Amazon go up and down completely randomly.

Pair Corralation between Alibaba Group and Amazon

Assuming the 90 days trading horizon Alibaba Group Holding is expected to generate 1.89 times more return on investment than Amazon. However, Alibaba Group is 1.89 times more volatile than Amazon Inc. It trades about 0.29 of its potential returns per unit of risk. Amazon Inc is currently generating about -0.03 per unit of risk. If you would invest  1,115,000  in Alibaba Group Holding on December 30, 2024 and sell it today you would earn a total of  805,000  from holding Alibaba Group Holding or generate 72.2% return on investment over 90 days.

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

Alibaba Group Holding  vs.  Amazon Inc

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 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Alibaba Group sustained solid returns over the last few months and may actually be approaching a breakup point.

Amazon Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Amazon Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Amazon is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alibaba Group and Amazon

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

The idea behind Alibaba Group Holding and Amazon Inc 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.