Correlation Between Alibaba Group and JD
Can any of the company-specific risk be diversified away by investing in both Alibaba Group and JD 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 JD 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 JD Inc Adr, you can compare the effects of market volatilities on Alibaba Group and JD 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 JD. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alibaba Group and JD.
Diversification Opportunities for Alibaba Group and JD
-0.03 | Correlation Coefficient |
Good diversification
The 3 months correlation between Alibaba and JD is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and JD Inc Adr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Inc Adr 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 JD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Inc Adr has no effect on the direction of Alibaba Group i.e., Alibaba Group and JD go up and down completely randomly.
Pair Corralation between Alibaba Group and JD
Given the investment horizon of 90 days Alibaba Group is expected to generate 1.6 times less return on investment than JD. But when comparing it to its historical volatility, Alibaba Group Holding is 1.3 times less risky than JD. It trades about 0.14 of its potential returns per unit of risk. JD Inc Adr is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 2,649 in JD Inc Adr on January 27, 2024 and sell it today you would earn a total of 210.00 from holding JD Inc Adr or generate 7.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Alibaba Group Holding vs. JD Inc Adr
Performance |
| Timeline |
| Alibaba Group Holding |
| JD Inc Adr |
Alibaba Group and JD Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alibaba Group and JD
The main advantage of trading using opposite Alibaba Group and JD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alibaba Group position performs unexpectedly, JD 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 JD will offset losses from the drop in JD's long position.The idea behind Alibaba Group Holding and JD Inc Adr 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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