Correlation Between Nestle SA and Alibaba Group

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

Diversification Opportunities for Nestle SA and Alibaba Group

-0.04
  Correlation Coefficient

Good diversification

The 3 months correlation between Nestle and Alibaba is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Nestle SA 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 Nestle SA 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 Nestle SA 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 Nestle SA i.e., Nestle SA and Alibaba Group go up and down completely randomly.

Pair Corralation between Nestle SA and Alibaba Group

Assuming the 90 days horizon Nestle SA is expected to under-perform the Alibaba Group. But the pink sheet apears to be less risky and, when comparing its historical volatility, Nestle SA is 2.36 times less risky than Alibaba Group. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Alibaba Group Holding is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  10,216  in Alibaba Group Holding on December 29, 2023 and sell it today you would lose (3,057) from holding Alibaba Group Holding or give up 29.92% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Nestle SA  vs.  Alibaba Group Holding

 Performance 
       Timeline  
Nestle SA 

Risk-Adjusted Performance

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Over the last 90 days Nestle SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.
Alibaba Group Holding 

Risk-Adjusted Performance

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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 latest unfluctuating performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Nestle SA and Alibaba Group Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Nestle SA and Alibaba Group

The main advantage of trading using opposite Nestle SA and Alibaba Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nestle SA 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 Nestle SA 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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