Correlation Between Alibaba Group and IShares Continental

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

Diversification Opportunities for Alibaba Group and IShares Continental

0.65

Correlation Coefficient

Alibaba Group  IShares Continental

Poor diversification

The 3 months correlation between Alibaba and IShares is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and iShares Continental European in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Continental 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 IShares Continental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Continental has no effect on the direction of Alibaba Group i.e., Alibaba Group and IShares Continental go up and down completely randomly.

Pair Corralation between Alibaba Group and IShares Continental

Given the investment horizon of 90 days Alibaba Group Holding is expected to under-perform the IShares Continental. In addition to that, Alibaba Group is 3.31 times more volatile than iShares Continental European. It trades about -0.12 of its total potential returns per unit of risk. iShares Continental European is currently generating about -0.03 per unit of volatility. If you would invest  111.00  in iShares Continental European on October 7, 2024 and sell it today you would lose (1.00) from holding iShares Continental European or give up 0.9% of portfolio value over 90 days.

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

Alibaba Group Holding  vs.  iShares Continental European

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 unsteady performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

iShares Continental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Continental European has generated negative risk-adjusted returns adding no value to fund investors. In spite of very healthy basic indicators, IShares Continental is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Alibaba Group and IShares Continental

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

The idea behind Alibaba Group Holding and iShares Continental European 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.