Correlation Between Alliance Data and Alibaba Group

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

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

Diversification Opportunities for Alliance Data and Alibaba Group

-0.58

Correlation Coefficient

Alliance Data  Alibaba Group

Excellent diversification

The 3 months correlation between Alliance and Alibaba is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems 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 Alliance Data 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 Alliance Data Systems 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 Alliance Data i.e., Alliance Data and Alibaba Group go up and down completely randomly.

Pair Corralation between Alliance Data and Alibaba Group

Assuming the 90 days trading horizon Alliance Data Systems is expected to generate 0.8 times more return on investment than Alibaba Group. However, Alliance Data Systems is 1.25 times less risky than Alibaba Group. It trades about -0.14 of its potential returns per unit of risk. Alibaba Group Holding is currently generating about -0.16 per unit of risk. If you would invest  6,138  in Alliance Data Systems on October 8, 2024 and sell it today you would lose (236.00) from holding Alliance Data Systems or give up 3.84% of portfolio value over 90 days.

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

Alliance Data Systems  vs.  Alibaba Group Holding

Alliance Data Systems

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Alliance Data unveiled solid returns over the last few months and may actually be approaching a breakup point.

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. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Alliance Data and Alibaba Group

The main advantage of trading using opposite Alliance Data and Alibaba Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alliance Data 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 Alliance Data Systems 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.