Correlation Between Topbuild Corp and Alibaba Group

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Can any of the company-specific risk be diversified away by investing in both Topbuild Corp 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 Topbuild Corp and Alibaba Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Topbuild Corp and Alibaba Group Holding, you can compare the effects of market volatilities on Topbuild Corp 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 Topbuild Corp with a short position of Alibaba Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Topbuild Corp and Alibaba Group.

Diversification Opportunities for Topbuild Corp and Alibaba Group

-0.53
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Topbuild and Alibaba is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Topbuild Corp 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 Topbuild Corp 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 Topbuild Corp 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 Topbuild Corp i.e., Topbuild Corp and Alibaba Group go up and down completely randomly.

Pair Corralation between Topbuild Corp and Alibaba Group

Considering the 90-day investment horizon Topbuild Corp is expected to generate 0.73 times more return on investment than Alibaba Group. However, Topbuild Corp is 1.36 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 0.03 per unit of risk. If you would invest  37,426  in Topbuild Corp on December 29, 2023 and sell it today you would earn a total of  6,647  from holding Topbuild Corp or generate 17.76% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Topbuild Corp  vs.  Alibaba Group Holding

 Performance 
       Timeline  
Topbuild Corp 

Risk-Adjusted Performance

10 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Topbuild Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting essential indicators, Topbuild Corp exhibited solid returns over the last few months and may actually be approaching a breakup point.
Alibaba Group Holding 

Risk-Adjusted Performance

2 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Group Holding are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Alibaba Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Topbuild Corp and Alibaba Group Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Topbuild Corp and Alibaba Group

The main advantage of trading using opposite Topbuild Corp and Alibaba Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Topbuild Corp 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 Topbuild Corp 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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