Correlation Between Alibaba Group and Disney

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

Diversification Opportunities for Alibaba Group and Disney

-0.89

Correlation Coefficient

Alibaba Group  Disney

Pay attention - limited upside

The 3 months correlation between Alibaba and Disney is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and The Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney 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 Disney. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walt Disney has no effect on the direction of Alibaba Group i.e., Alibaba Group and Disney go up and down completely randomly.

Pair Corralation between Alibaba Group and Disney

Assuming the 90 days trading horizon Alibaba Group Holding is expected to generate 1.69 times more return on investment than Disney. However, Alibaba Group is 1.69 times more volatile than The Walt Disney. It trades about 0.1 of its potential returns per unit of risk. The Walt Disney is currently generating about -0.1 per unit of risk. If you would invest  171,000  in Alibaba Group Holding on October 20, 2024 and sell it today you would earn a total of  6,000  from holding Alibaba Group Holding or generate 3.51% return on investment over 90 days.

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

Alibaba Group Holding  vs.  The Walt Disney

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.

Walt Disney

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with Alibaba Group and Disney

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

The idea behind Alibaba Group Holding and The Walt Disney 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.