Correlation Between Alibaba Group and Nestle India

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

Diversification Opportunities for Alibaba Group and Nestle India

0.74

Correlation Coefficient

Alibaba Group  Nestle India

Poor diversification

The 3 months correlation between Alibaba and Nestle is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Nestle India Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle India Limited 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 Nestle India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle India Limited has no effect on the direction of Alibaba Group i.e., Alibaba Group and Nestle India go up and down completely randomly.

Pair Corralation between Alibaba Group and Nestle India

Given the investment horizon of 90 days Alibaba Group is expected to generate 2.08 times less return on investment than Nestle India. In addition to that, Alibaba Group is 1.58 times more volatile than Nestle India Limited. It trades about 0.04 of its total potential returns per unit of risk. Nestle India Limited is currently generating about 0.12 per unit of volatility. If you would invest  216,400  in Nestle India Limited on October 20, 2024 and sell it today you would earn a total of  5,320  from holding Nestle India Limited or generate 2.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Alibaba Group Holding  vs.  Nestle India Limited

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.

Nestle India Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nestle India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, Nestle India is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Alibaba Group and Nestle India

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

The idea behind Alibaba Group Holding and Nestle India Limited 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.