Correlation Between Berkshire Hathaway and Alibaba Group

Can any of the company-specific risk be diversified away by investing in both Berkshire Hathaway 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 Berkshire Hathaway and Alibaba Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Berkshire Hathaway and Alibaba Group Holding, you can compare the effects of market volatilities on Berkshire Hathaway 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 Berkshire Hathaway with a short position of Alibaba Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Berkshire Hathaway and Alibaba Group.

Diversification Opportunities for Berkshire Hathaway and Alibaba Group

0.4

Correlation Coefficient

Berkshire Hathaway  Alibaba Group

Very weak diversification

The 3 months correlation between Berkshire and Alibaba is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway 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 Berkshire Hathaway 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 Berkshire Hathaway 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 Berkshire Hathaway i.e., Berkshire Hathaway and Alibaba Group go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Alibaba Group

Assuming the 90 days horizon Berkshire Hathaway is expected to generate 0.5 times more return on investment than Alibaba Group. However, Berkshire Hathaway is 2.02 times less risky than Alibaba Group. It trades about -0.18 of its potential returns per unit of risk. Alibaba Group Holding is currently generating about -0.2 per unit of risk. If you would invest  61,788,000  in Berkshire Hathaway on January 18, 2024 and sell it today you would lose (1,758,000) from holding Berkshire Hathaway or give up 2.85% of portfolio value over 90 days.

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

Berkshire Hathaway  vs.  Alibaba Group Holding

Berkshire Hathaway

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Berkshire Hathaway may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Alibaba Group Holding

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Group Holding are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Alibaba Group is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Berkshire Hathaway and Alibaba Group

The main advantage of trading using opposite Berkshire Hathaway and Alibaba Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Berkshire Hathaway 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 Berkshire Hathaway 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.