Correlation Between Alibaba Group and Home Depot

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

Diversification Opportunities for Alibaba Group and Home Depot

-0.27

Correlation Coefficient

Alibaba Group  Home Depot

Very good diversification

The 3 months correlation between Alibaba and Home is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot 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 Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Alibaba Group i.e., Alibaba Group and Home Depot go up and down completely randomly.

Pair Corralation between Alibaba Group and Home Depot

Assuming the 90 days trading horizon Alibaba Group Holding is expected to under-perform the Home Depot. In addition to that, Alibaba Group is 1.36 times more volatile than The Home Depot. It trades about -0.1 of its total potential returns per unit of risk. The Home Depot is currently generating about 0.06 per unit of volatility. If you would invest  802,587  in The Home Depot on October 26, 2024 and sell it today you would earn a total of  37,888  from holding The Home Depot or generate 4.72% 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.  The Home Depot

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 weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Home Depot

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong primary indicators, Home Depot is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alibaba Group and Home Depot

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

The idea behind Alibaba Group Holding and The Home Depot 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.