Correlation Between Alibaba Group and Banco ABC

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

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

Diversification Opportunities for Alibaba Group and Banco ABC

-0.6

Correlation Coefficient

Alibaba Group  Banco ABC

Excellent diversification

The 3 months correlation between Alibaba and Banco is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Banco ABC Brasil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco ABC Brasil and Alibaba Group 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 Alibaba Group Holding are associated (or correlated) with Banco ABC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco ABC Brasil has no effect on the direction of Alibaba Group i.e., Alibaba Group and Banco ABC go up and down completely randomly.

Pair Corralation between Alibaba Group and Banco ABC

Assuming the 90 days trading horizon Alibaba Group Holding is expected to generate 2.68 times more return on investment than Banco ABC. However, Alibaba Group is 2.68 times more volatile than Banco ABC Brasil. It trades about 0.08 of its potential returns per unit of risk. Banco ABC Brasil is currently generating about -0.21 per unit of risk. If you would invest  1,662  in Alibaba Group Holding on September 4, 2024 and sell it today you would earn a total of  208.00  from holding Alibaba Group Holding or generate 12.52% return on investment over 90 days.

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

Alibaba Group Holding  vs.  Banco ABC Brasil

Alibaba Group Holding

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Group Holding are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental drivers, Alibaba Group sustained solid returns over the last few months and may actually be approaching a breakup point.

Banco ABC Brasil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco ABC Brasil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Preferred Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Alibaba Group and Banco ABC

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

The idea behind Alibaba Group Holding and Banco ABC Brasil 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 Valuation module to check real value of public entities based on technical and fundamental data.