Correlation Between Alibaba Group and Shanghai Putailai

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

Diversification Opportunities for Alibaba Group and Shanghai Putailai

-0.64

Correlation Coefficient

Alibaba Group  Shanghai Putailai

Excellent diversification

The 3 months correlation between Alibaba and Shanghai is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Shanghai Putailai New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Putailai New 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 Shanghai Putailai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Putailai New has no effect on the direction of Alibaba Group i.e., Alibaba Group and Shanghai Putailai go up and down completely randomly.

Pair Corralation between Alibaba Group and Shanghai Putailai

Given the investment horizon of 90 days Alibaba Group Holding is expected to generate 1.44 times more return on investment than Shanghai Putailai. However, Alibaba Group is 1.44 times more volatile than Shanghai Putailai New. It trades about 0.01 of its potential returns per unit of risk. Shanghai Putailai New is currently generating about -0.58 per unit of risk. If you would invest  8,493  in Alibaba Group Holding on October 5, 2024 and sell it today you would earn a total of  2.00  from holding Alibaba Group Holding or generate 0.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Alibaba Group Holding  vs.  Shanghai Putailai New

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.

Shanghai Putailai New

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai Putailai New has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shanghai Putailai 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 Shanghai Putailai

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

The idea behind Alibaba Group Holding and Shanghai Putailai New 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.