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

0.92

Correlation Coefficient

Alibaba Group  JD

Almost no diversification

The 3 months correlation between Alibaba and JD is 0.92. 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 Holding is expected to under-perform the JD. But the stock apears to be less risky and, when comparing its historical volatility, Alibaba Group Holding is 1.69 times less risky than JD. The stock trades about -0.29 of its potential returns per unit of risk. The JD Inc Adr is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  3,933  in JD Inc Adr on August 25, 2024 and sell it today you would lose (465.00) from holding JD Inc Adr or give up 11.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

Alibaba Group Holding  vs.  JD Inc Adr

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.

JD Inc Adr

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in JD Inc Adr are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, JD exhibited solid returns over the last few months and may actually be approaching a breakup point.

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.

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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.