Correlation Between Topbuild Corp and Alibaba Group

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

-0.61

Correlation Coefficient

Topbuild Corp  Alibaba Group

Excellent diversification

The 3 months correlation between Topbuild and Alibaba is -0.61. 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 under-perform the Alibaba Group. In addition to that, Topbuild Corp is 1.05 times more volatile than Alibaba Group Holding. It trades about -0.17 of its total potential returns per unit of risk. Alibaba Group Holding is currently generating about 0.21 per unit of volatility. If you would invest  861,850  in Alibaba Group Holding on January 30, 2024 and sell it today you would earn a total of  62,300  from holding Alibaba Group Holding or generate 7.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	90.48%
Values	Daily Returns

Topbuild Corp  vs.  Alibaba Group Holding

Topbuild Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Topbuild Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, Topbuild Corp may actually be approaching a critical reversion point that can send shares even higher in May 2024.

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

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.

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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.