Correlation Between Alibaba Group and Deutsche Wohnen

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

Diversification Opportunities for Alibaba Group and Deutsche Wohnen

0.43

Correlation Coefficient

Alibaba Group  Deutsche Wohnen

Very weak diversification

The 3 months correlation between Alibaba and Deutsche is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Deutsche Wohnen SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Wohnen SE 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 Deutsche Wohnen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Wohnen SE has no effect on the direction of Alibaba Group i.e., Alibaba Group and Deutsche Wohnen go up and down completely randomly.

Pair Corralation between Alibaba Group and Deutsche Wohnen

Given the investment horizon of 90 days Alibaba Group Holding is expected to generate 1.35 times more return on investment than Deutsche Wohnen. However, Alibaba Group is 1.35 times more volatile than Deutsche Wohnen SE. It trades about 0.04 of its potential returns per unit of risk. Deutsche Wohnen SE is currently generating about 0.0 per unit of risk. If you would invest  8,431  in Alibaba Group Holding on October 20, 2024 and sell it today you would earn a total of  81.00  from holding Alibaba Group Holding or generate 0.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	89.47%
Values	Daily Returns

Alibaba Group Holding  vs.  Deutsche Wohnen SE

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.

Deutsche Wohnen SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Deutsche Wohnen SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Deutsche Wohnen is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Alibaba Group and Deutsche Wohnen

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

The idea behind Alibaba Group Holding and Deutsche Wohnen SE 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.