Correlation Between Alibaba Group and Xiaomi

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

Diversification Opportunities for Alibaba Group and Xiaomi

-0.52

Correlation Coefficient

Alibaba Group  Xiaomi

Excellent diversification

The 3 months correlation between Alibaba and Xiaomi is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Xiaomi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiaomi 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 Xiaomi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiaomi has no effect on the direction of Alibaba Group i.e., Alibaba Group and Xiaomi go up and down completely randomly.

Pair Corralation between Alibaba Group and Xiaomi

Assuming the 90 days trading horizon Alibaba Group is expected to generate 6.43 times less return on investment than Xiaomi. But when comparing it to its historical volatility, Alibaba Group Holding is 3.24 times less risky than Xiaomi. It trades about 0.11 of its potential returns per unit of risk. Xiaomi is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  8,100  in Xiaomi on October 22, 2024 and sell it today you would earn a total of  1,500  from holding Xiaomi or generate 18.52% 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.  Xiaomi

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. In spite of latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Xiaomi

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xiaomi are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Xiaomi displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alibaba Group and Xiaomi

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

The idea behind Alibaba Group Holding and Xiaomi 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.