Correlation Between Microsoft and Alibaba Group

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

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

Diversification Opportunities for Microsoft and Alibaba Group

-0.81

Correlation Coefficient

Microsoft  Alibaba Group

Pay attention - limited upside

The 3 months correlation between Microsoft and Alibaba is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft 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 Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Alibaba Group go up and down completely randomly.

Pair Corralation between Microsoft and Alibaba Group

Assuming the 90 days trading horizon Microsoft is expected to under-perform the Alibaba Group. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 2.23 times less risky than Alibaba Group. The stock trades about -0.13 of its potential returns per unit of risk. The Alibaba Group Holding is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,870  in Alibaba Group Holding on November 30, 2024 and sell it today you would earn a total of  918.00  from holding Alibaba Group Holding or generate 49.09% return on investment over 90 days.

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

Microsoft  vs.  Alibaba Group Holding

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Alibaba Group sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Alibaba Group

The main advantage of trading using opposite Microsoft and Alibaba Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.