Correlation Between Alibaba Group and Royal Caribbean

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

Diversification Opportunities for Alibaba Group and Royal Caribbean

-0.94

Correlation Coefficient

Alibaba Group  Royal Caribbean

Pay attention - limited upside

The 3 months correlation between Alibaba and Royal is -0.94. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Royal Caribbean Cruises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Caribbean Cruises 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 Royal Caribbean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Caribbean Cruises has no effect on the direction of Alibaba Group i.e., Alibaba Group and Royal Caribbean go up and down completely randomly.

Pair Corralation between Alibaba Group and Royal Caribbean

Given the investment horizon of 90 days Alibaba Group Holding is expected to under-perform the Royal Caribbean. In addition to that, Alibaba Group is 1.12 times more volatile than Royal Caribbean Cruises. It trades about -0.01 of its total potential returns per unit of risk. Royal Caribbean Cruises is currently generating about 0.15 per unit of volatility. If you would invest  16,051  in Royal Caribbean Cruises on October 5, 2024 and sell it today you would earn a total of  54,389  from holding Royal Caribbean Cruises or generate 338.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Alibaba Group Holding  vs.  Royal Caribbean Cruises

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.

Royal Caribbean Cruises

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Caribbean Cruises are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Royal Caribbean sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alibaba Group and Royal Caribbean

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

The idea behind Alibaba Group Holding and Royal Caribbean Cruises 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.