Correlation Between Alibaba Group and Sea

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

Diversification Opportunities for Alibaba Group and Sea

0.39

Correlation Coefficient

Alibaba Group  Sea

Weak diversification

The 3 months correlation between Alibaba and Sea is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Sea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea 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 Sea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea has no effect on the direction of Alibaba Group i.e., Alibaba Group and Sea go up and down completely randomly.

Pair Corralation between Alibaba Group and Sea

Given the investment horizon of 90 days Alibaba Group Holding is expected to under-perform the Sea. But the stock apears to be less risky and, when comparing its historical volatility, Alibaba Group Holding is 1.48 times less risky than Sea. The stock trades about -0.33 of its potential returns per unit of risk. The Sea is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  9,926  in Sea on August 29, 2024 and sell it today you would earn a total of  1,467  from holding Sea or generate 14.78% return on investment over 90 days.

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

Alibaba Group Holding  vs.  Sea

Alibaba Group Holding

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Group Holding are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental drivers, Alibaba Group may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Sea

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alibaba Group and Sea

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

The idea behind Alibaba Group Holding and Sea 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 Stocks Directory module to find actively traded stocks across global markets.