Correlation Between Alibaba Group and Royal Bank

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

Diversification Opportunities for Alibaba Group and Royal Bank

-0.8

Correlation Coefficient

Alibaba Group  Royal Bank

Pay attention - limited upside

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

Pair Corralation between Alibaba Group and Royal Bank

Given the investment horizon of 90 days Alibaba Group Holding is expected to generate 5.41 times more return on investment than Royal Bank. However, Alibaba Group is 5.41 times more volatile than Royal Bank of. It trades about 0.04 of its potential returns per unit of risk. Royal Bank of is currently generating about 0.16 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	99.6%
Values	Daily Returns

Alibaba Group Holding  vs.  Royal Bank of

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 Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Bank of are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental drivers, Royal Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Alibaba Group and Royal Bank

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

The idea behind Alibaba Group Holding and Royal Bank of 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.