Correlation Between Alibaba Group and Ternium SA

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

Diversification Opportunities for Alibaba Group and Ternium SA

0.87

Correlation Coefficient

Alibaba Group  Ternium SA

Very poor diversification

The 3 months correlation between Alibaba and Ternium is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Ternium SA DRC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ternium SA DRC 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 Ternium SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ternium SA DRC has no effect on the direction of Alibaba Group i.e., Alibaba Group and Ternium SA go up and down completely randomly.

Pair Corralation between Alibaba Group and Ternium SA

Assuming the 90 days trading horizon Alibaba Group Holding is expected to generate 0.79 times more return on investment than Ternium SA. However, Alibaba Group Holding is 1.27 times less risky than Ternium SA. It trades about 0.06 of its potential returns per unit of risk. Ternium SA DRC is currently generating about -0.06 per unit of risk. If you would invest  770,895  in Alibaba Group Holding on September 20, 2024 and sell it today you would earn a total of  326,605  from holding Alibaba Group Holding or generate 42.37% return on investment over 90 days.

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

Alibaba Group Holding  vs.  Ternium SA DRC

Alibaba Group Holding

Risk-Adjusted Performance

0 of 100

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 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.

Ternium SA DRC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ternium SA DRC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Alibaba Group and Ternium SA

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

The idea behind Alibaba Group Holding and Ternium SA DRC 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.