Correlation Between Disney and Alibaba Group

Can any of the company-specific risk be diversified away by investing in both Disney and Alibaba Group 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 Disney and Alibaba Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Walt Disney and Alibaba Group Holding, you can compare the effects of market volatilities on Disney and Alibaba Group 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 Disney with a short position of Alibaba Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Disney and Alibaba Group.

Diversification Opportunities for Disney and Alibaba Group

-0.4

Correlation Coefficient

Disney  Alibaba Group

Very good diversification

The 3 months correlation between Disney and Alibaba is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding The Walt Disney and Alibaba Group Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alibaba Group Holding and Disney 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 The Walt Disney are associated (or correlated) with Alibaba Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alibaba Group Holding has no effect on the direction of Disney i.e., Disney and Alibaba Group go up and down completely randomly.

Pair Corralation between Disney and Alibaba Group

Assuming the 90 days trading horizon The Walt Disney is expected to generate 0.59 times more return on investment than Alibaba Group. However, The Walt Disney is 1.7 times less risky than Alibaba Group. It trades about 0.25 of its potential returns per unit of risk. Alibaba Group Holding is currently generating about 0.06 per unit of risk. If you would invest  177,410  in The Walt Disney on September 16, 2024 and sell it today you would earn a total of  50,990  from holding The Walt Disney or generate 28.74% return on investment over 90 days.

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

The Walt Disney  vs.  Alibaba Group Holding

Walt Disney

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Walt Disney are ranked lower than 19 (%) 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.

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.

Pair Trading with Disney and Alibaba Group

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

The idea behind The Walt Disney and Alibaba Group Holding 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.