Correlation Between Alibaba Group and Varta AG

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

Diversification Opportunities for Alibaba Group and Varta AG

0.44

Correlation Coefficient

Alibaba Group  Varta AG

Very weak diversification

The 3 months correlation between Alibaba and Varta is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Varta AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Varta AG 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 Varta AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Varta AG has no effect on the direction of Alibaba Group i.e., Alibaba Group and Varta AG go up and down completely randomly.

Pair Corralation between Alibaba Group and Varta AG

Given the investment horizon of 90 days Alibaba Group Holding is expected to under-perform the Varta AG. But the stock apears to be less risky and, when comparing its historical volatility, Alibaba Group Holding is 6.35 times less risky than Varta AG. The stock trades about -0.2 of its potential returns per unit of risk. The Varta AG is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  142.00  in Varta AG on October 4, 2024 and sell it today you would earn a total of  12.00  from holding Varta AG or generate 8.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.77%
Values	Daily Returns

Alibaba Group Holding  vs.  Varta AG

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.

Varta AG

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Varta AG are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Varta AG exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alibaba Group and Varta AG

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

The idea behind Alibaba Group Holding and Varta AG 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.