Correlation Between ETFS Coffee and Alibaba Group

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

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

Diversification Opportunities for ETFS Coffee and Alibaba Group

0.54

Correlation Coefficient

ETFS Coffee  Alibaba Group

Very weak diversification

The 3 months correlation between ETFS and Alibaba is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding ETFS Coffee ETC 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 ETFS Coffee 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 ETFS Coffee ETC 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 ETFS Coffee i.e., ETFS Coffee and Alibaba Group go up and down completely randomly.

Pair Corralation between ETFS Coffee and Alibaba Group

Assuming the 90 days trading horizon ETFS Coffee is expected to generate 3.24 times less return on investment than Alibaba Group. But when comparing it to its historical volatility, ETFS Coffee ETC is 1.39 times less risky than Alibaba Group. It trades about 0.11 of its potential returns per unit of risk. Alibaba Group Holding is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  988.00  in Alibaba Group Holding on December 20, 2024 and sell it today you would earn a total of  647.00  from holding Alibaba Group Holding or generate 65.49% return on investment over 90 days.

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

ETFS Coffee ETC  vs.  Alibaba Group Holding

ETFS Coffee ETC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ETFS Coffee ETC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, ETFS Coffee reported solid returns over the last few months and may actually be approaching a breakup point.

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 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Alibaba Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ETFS Coffee and Alibaba Group

The main advantage of trading using opposite ETFS Coffee and Alibaba Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ETFS Coffee 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 ETFS Coffee ETC 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.