Correlation Between Alibaba Group and LG DAX

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

Diversification Opportunities for Alibaba Group and LG DAX

0.4

Correlation Coefficient

Alibaba Group  LG DAX

Very weak diversification

The 3 months correlation between Alibaba and DES2 is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and LG DAX Daily in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG DAX Daily 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 LG DAX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG DAX Daily has no effect on the direction of Alibaba Group i.e., Alibaba Group and LG DAX go up and down completely randomly.

Pair Corralation between Alibaba Group and LG DAX

Given the investment horizon of 90 days Alibaba Group Holding is expected to under-perform the LG DAX. In addition to that, Alibaba Group is 1.43 times more volatile than LG DAX Daily. It trades about -0.15 of its total potential returns per unit of risk. LG DAX Daily is currently generating about -0.11 per unit of volatility. If you would invest  99.00  in LG DAX Daily on October 6, 2024 and sell it today you would lose (7.00) from holding LG DAX Daily or give up 7.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.56%
Values	Daily Returns

Alibaba Group Holding  vs.  LG DAX Daily

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.

LG DAX Daily

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LG DAX Daily has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Pair Trading with Alibaba Group and LG DAX

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

The idea behind Alibaba Group Holding and LG DAX Daily 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.