Correlation Between Alibaba Group and FibraHotel

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

Diversification Opportunities for Alibaba Group and FibraHotel

-0.42

Correlation Coefficient

Alibaba Group  FibraHotel

Very good diversification

The 3 months correlation between Alibaba and FibraHotel is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and FibraHotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FibraHotel 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 FibraHotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FibraHotel has no effect on the direction of Alibaba Group i.e., Alibaba Group and FibraHotel go up and down completely randomly.

Pair Corralation between Alibaba Group and FibraHotel

Assuming the 90 days trading horizon Alibaba Group Holding is expected to under-perform the FibraHotel. In addition to that, Alibaba Group is 1.41 times more volatile than FibraHotel. It trades about -0.03 of its total potential returns per unit of risk. FibraHotel is currently generating about 0.0 per unit of volatility. If you would invest  909.00  in FibraHotel on September 16, 2024 and sell it today you would lose (1.00) from holding FibraHotel or give up 0.11% of portfolio value over 90 days.

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

Alibaba Group Holding  vs.  FibraHotel

Alibaba Group Holding

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Group Holding are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Alibaba Group may actually be approaching a critical reversion point that can send shares even higher in January 2025.

FibraHotel

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FibraHotel are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, FibraHotel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Alibaba Group and FibraHotel

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

The idea behind Alibaba Group Holding and FibraHotel 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.