Correlation Between Alibaba Group and Essentra Plc

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

Diversification Opportunities for Alibaba Group and Essentra Plc

0.62

Correlation Coefficient

Alibaba Group  Essentra Plc

Poor diversification

The 3 months correlation between Alibaba and Essentra is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Essentra plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essentra plc 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 Essentra Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essentra plc has no effect on the direction of Alibaba Group i.e., Alibaba Group and Essentra Plc go up and down completely randomly.

Pair Corralation between Alibaba Group and Essentra Plc

Given the investment horizon of 90 days Alibaba Group Holding is expected to generate 0.74 times more return on investment than Essentra Plc. However, Alibaba Group Holding is 1.35 times less risky than Essentra Plc. It trades about 0.04 of its potential returns per unit of risk. Essentra plc is currently generating about -0.25 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	Significant
Accuracy	85.0%
Values	Daily Returns

Alibaba Group Holding  vs.  Essentra plc

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.

Essentra plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Essentra plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Alibaba Group and Essentra Plc

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

The idea behind Alibaba Group Holding and Essentra plc 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.