Correlation Between Alibaba Group and MetLife

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

Diversification Opportunities for Alibaba Group and MetLife

-0.35

Correlation Coefficient

Alibaba Group  MetLife

Very good diversification

The 3 months correlation between Alibaba and MetLife is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and MetLife in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MetLife 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 MetLife. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MetLife has no effect on the direction of Alibaba Group i.e., Alibaba Group and MetLife go up and down completely randomly.

Pair Corralation between Alibaba Group and MetLife

Assuming the 90 days trading horizon Alibaba Group Holding is expected to generate 1.96 times more return on investment than MetLife. However, Alibaba Group is 1.96 times more volatile than MetLife. It trades about 0.13 of its potential returns per unit of risk. MetLife is currently generating about -0.05 per unit of risk. If you would invest  1,765  in Alibaba Group Holding on September 27, 2024 and sell it today you would earn a total of  122.00  from holding Alibaba Group Holding or generate 6.91% return on investment over 90 days.

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

Alibaba Group Holding  vs.  MetLife

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.

MetLife

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MetLife are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, MetLife sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alibaba Group and MetLife

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

The idea behind Alibaba Group Holding and MetLife 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.