Correlation Between Farfetch and Alibaba Group

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

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

Diversification Opportunities for Farfetch and Alibaba Group

0.0

Correlation Coefficient

Farfetch  Alibaba Group

Pay attention - limited upside

The 3 months correlation between Farfetch and Alibaba is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Farfetch Ltd Class 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 Farfetch 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 Farfetch Ltd Class 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 Farfetch i.e., Farfetch and Alibaba Group go up and down completely randomly.

Pair Corralation between Farfetch and Alibaba Group

If you would invest  8,413  in Alibaba Group Holding on December 30, 2024 and sell it today you would earn a total of  4,830  from holding Alibaba Group Holding or generate 57.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Farfetch Ltd Class  vs.  Alibaba Group Holding

Farfetch Class

Risk-Adjusted Performance

Very Weak

Over the last 90 days Farfetch Ltd Class has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Farfetch is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Alibaba Group Holding

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Group Holding are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental drivers, Alibaba Group sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Farfetch and Alibaba Group

The main advantage of trading using opposite Farfetch and Alibaba Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Farfetch 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 Farfetch Ltd Class 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.

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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.