Correlation Between Alibaba Group and Church Dwight

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

Diversification Opportunities for Alibaba Group and Church Dwight

0.68

Correlation Coefficient

Alibaba Group  Church Dwight

Poor diversification

The 3 months correlation between Alibaba and Church is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Church Dwight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Church Dwight 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 Church Dwight. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Church Dwight has no effect on the direction of Alibaba Group i.e., Alibaba Group and Church Dwight go up and down completely randomly.

Pair Corralation between Alibaba Group and Church Dwight

Given the investment horizon of 90 days Alibaba Group Holding is expected to generate 2.57 times more return on investment than Church Dwight. However, Alibaba Group is 2.57 times more volatile than Church Dwight. It trades about 0.29 of its potential returns per unit of risk. Church Dwight is currently generating about 0.03 per unit of risk. If you would invest  8,228  in Alibaba Group Holding on December 20, 2024 and sell it today you would earn a total of  6,092  from holding Alibaba Group Holding or generate 74.04% return on investment over 90 days.

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

Alibaba Group Holding  vs.  Church Dwight

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

Church Dwight

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Church Dwight are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Church Dwight is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Alibaba Group and Church Dwight

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

The idea behind Alibaba Group Holding and Church Dwight 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.