Correlation Between Alibaba Group and Plum Acquisition

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

Diversification Opportunities for Alibaba Group and Plum Acquisition

-0.03

Correlation Coefficient

Alibaba Group  Plum Acquisition

Good diversification

The 3 months correlation between Alibaba and Plum is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Plum Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plum Acquisition Corp 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 Plum Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plum Acquisition Corp has no effect on the direction of Alibaba Group i.e., Alibaba Group and Plum Acquisition go up and down completely randomly.

Pair Corralation between Alibaba Group and Plum Acquisition

Given the investment horizon of 90 days Alibaba Group is expected to generate 1.15 times less return on investment than Plum Acquisition. In addition to that, Alibaba Group is 2.36 times more volatile than Plum Acquisition Corp. It trades about 0.01 of its total potential returns per unit of risk. Plum Acquisition Corp is currently generating about 0.02 per unit of volatility. If you would invest  1,060  in Plum Acquisition Corp on October 4, 2024 and sell it today you would earn a total of  40.00  from holding Plum Acquisition Corp or generate 3.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	64.95%
Values	Daily Returns

Alibaba Group Holding  vs.  Plum Acquisition Corp

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.

Plum Acquisition Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Plum Acquisition Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward-looking indicators, Plum Acquisition is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Alibaba Group and Plum Acquisition

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

The idea behind Alibaba Group Holding and Plum Acquisition Corp 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.