Correlation Between Alibaba Group and GM

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Can any of the company-specific risk be diversified away by investing in both Alibaba Group and GM 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 GM 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 General Motors, you can compare the effects of market volatilities on Alibaba Group and GM 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 GM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alibaba Group and GM.

Diversification Opportunities for Alibaba Group and GM

0.03
  Correlation Coefficient

Significant diversification

The 3 months correlation between Alibaba and GM is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors 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 GM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of Alibaba Group i.e., Alibaba Group and GM go up and down completely randomly.

Pair Corralation between Alibaba Group and GM

Given the investment horizon of 90 days Alibaba Group Holding is expected to under-perform the GM. In addition to that, Alibaba Group is 1.05 times more volatile than General Motors. It trades about -0.07 of its total potential returns per unit of risk. General Motors is currently generating about 0.12 per unit of volatility. If you would invest  3,332  in General Motors on December 29, 2023 and sell it today you would earn a total of  1,203  from holding General Motors or generate 36.1% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Alibaba Group Holding  vs.  General Motors

 Performance 
       Timeline  
Alibaba Group Holding 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
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 somewhat strong fundamental drivers, Alibaba Group is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.
General Motors 

Risk-Adjusted Performance

17 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Alibaba Group and GM Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alibaba Group and GM

The main advantage of trading using opposite Alibaba Group and GM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alibaba Group position performs unexpectedly, GM 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 GM will offset losses from the drop in GM's long position.
The idea behind Alibaba Group Holding and General Motors 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.

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