Correlation Between Alibaba Group and InsCorp

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

Diversification Opportunities for Alibaba Group and InsCorp

-0.8

Correlation Coefficient

Alibaba Group  InsCorp

Pay attention - limited upside

The 3 months correlation between Alibaba and InsCorp is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and InsCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InsCorp 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 InsCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InsCorp has no effect on the direction of Alibaba Group i.e., Alibaba Group and InsCorp go up and down completely randomly.

Pair Corralation between Alibaba Group and InsCorp

Given the investment horizon of 90 days Alibaba Group Holding is expected to generate 1.7 times more return on investment than InsCorp. However, Alibaba Group is 1.7 times more volatile than InsCorp. It trades about 0.04 of its potential returns per unit of risk. InsCorp is currently generating about 0.07 per unit of risk. If you would invest  7,081  in Alibaba Group Holding on October 6, 2024 and sell it today you would earn a total of  1,473  from holding Alibaba Group Holding or generate 20.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	82.66%
Values	Daily Returns

Alibaba Group Holding  vs.  InsCorp

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.

InsCorp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in InsCorp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, InsCorp is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Alibaba Group and InsCorp

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

The idea behind Alibaba Group Holding and InsCorp 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.