Correlation Between Alibaba Group and Century Aluminum

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

Diversification Opportunities for Alibaba Group and Century Aluminum

-0.4

Correlation Coefficient

Alibaba Group  Century Aluminum

Very good diversification

The 3 months correlation between Alibaba and Century is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Century Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Aluminum 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 Century Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Aluminum has no effect on the direction of Alibaba Group i.e., Alibaba Group and Century Aluminum go up and down completely randomly.

Pair Corralation between Alibaba Group and Century Aluminum

Given the investment horizon of 90 days Alibaba Group is expected to generate 18.87 times less return on investment than Century Aluminum. But when comparing it to its historical volatility, Alibaba Group Holding is 1.94 times less risky than Century Aluminum. It trades about 0.02 of its potential returns per unit of risk. Century Aluminum is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,887  in Century Aluminum on October 24, 2024 and sell it today you would earn a total of  156.00  from holding Century Aluminum or generate 8.27% 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.  Century Aluminum

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 latest unsteady performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Century Aluminum

Risk-Adjusted Performance

6 of 100

OK

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

Pair Trading with Alibaba Group and Century Aluminum

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

The idea behind Alibaba Group Holding and Century Aluminum 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.