Correlation Between Alibaba Group and WSDMTR ERNGS

Can any of the company-specific risk be diversified away by investing in both Alibaba Group and WSDMTR ERNGS 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 WSDMTR ERNGS 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 WSDMTR ERNGS 500, you can compare the effects of market volatilities on Alibaba Group and WSDMTR ERNGS 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 WSDMTR ERNGS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alibaba Group and WSDMTR ERNGS.

Diversification Opportunities for Alibaba Group and WSDMTR ERNGS

-0.75

Correlation Coefficient

Alibaba Group  WSDMTR ERNGS

Pay attention - limited upside

The 3 months correlation between Alibaba and WSDMTR is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and WSDMTR ERNGS 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WSDMTR ERNGS 500 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 WSDMTR ERNGS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WSDMTR ERNGS 500 has no effect on the direction of Alibaba Group i.e., Alibaba Group and WSDMTR ERNGS go up and down completely randomly.

Pair Corralation between Alibaba Group and WSDMTR ERNGS

Given the investment horizon of 90 days Alibaba Group is expected to generate 2.38 times less return on investment than WSDMTR ERNGS. In addition to that, Alibaba Group is 1.87 times more volatile than WSDMTR ERNGS 500. It trades about 0.04 of its total potential returns per unit of risk. WSDMTR ERNGS 500 is currently generating about 0.19 per unit of volatility. If you would invest  3,325  in WSDMTR ERNGS 500 on October 5, 2024 and sell it today you would earn a total of  2,789  from holding WSDMTR ERNGS 500 or generate 83.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.88%
Values	Daily Returns

Alibaba Group Holding  vs.  WSDMTR ERNGS 500

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.

WSDMTR ERNGS 500

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WSDMTR ERNGS 500 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, WSDMTR ERNGS may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Alibaba Group and WSDMTR ERNGS

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

The idea behind Alibaba Group Holding and WSDMTR ERNGS 500 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.