Correlation Between Alibaba Group and LPL Financial

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

Diversification Opportunities for Alibaba Group and LPL Financial

-0.51

Correlation Coefficient

Alibaba Group  LPL Financial

Excellent diversification

The 3 months correlation between Alibaba and LPL is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and LPL Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LPL Financial Holdings 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 LPL Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LPL Financial Holdings has no effect on the direction of Alibaba Group i.e., Alibaba Group and LPL Financial go up and down completely randomly.

Pair Corralation between Alibaba Group and LPL Financial

Assuming the 90 days trading horizon Alibaba Group Holding is expected to under-perform the LPL Financial. But the stock apears to be less risky and, when comparing its historical volatility, Alibaba Group Holding is 1.14 times less risky than LPL Financial. The stock trades about -0.09 of its potential returns per unit of risk. The LPL Financial Holdings is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  11,314  in LPL Financial Holdings on October 22, 2024 and sell it today you would earn a total of  482.00  from holding LPL Financial Holdings or generate 4.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Alibaba Group Holding  vs.  LPL Financial Holdings

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 latest weak performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

LPL Financial Holdings

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in LPL Financial Holdings are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LPL Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alibaba Group and LPL Financial

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

The idea behind Alibaba Group Holding and LPL Financial Holdings 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.