Correlation Between JD and Alibaba Group

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

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

Diversification Opportunities for JD and Alibaba Group

0.68

Correlation Coefficient

JD  Alibaba Group

Poor diversification

The 3 months correlation between JD and Alibaba is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding JD Inc Adr and Alibaba Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alibaba Group Holdings and JD 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 JD Inc Adr 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 Holdings has no effect on the direction of JD i.e., JD and Alibaba Group go up and down completely randomly.

Pair Corralation between JD and Alibaba Group

Assuming the 90 days trading horizon JD is expected to generate 2.88 times less return on investment than Alibaba Group. But when comparing it to its historical volatility, JD Inc Adr is 1.02 times less risky than Alibaba Group. It trades about 0.08 of its potential returns per unit of risk. Alibaba Group Holdings is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  8,080  in Alibaba Group Holdings on December 29, 2024 and sell it today you would earn a total of  4,480  from holding Alibaba Group Holdings or generate 55.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

JD Inc Adr  vs.  Alibaba Group Holdings

JD Inc Adr

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in JD Inc Adr are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, JD reported solid returns over the last few months and may actually be approaching a breakup point.

Alibaba Group Holdings

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Group Holdings are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Alibaba Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with JD and Alibaba Group

The main advantage of trading using opposite JD and Alibaba Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JD 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 JD Inc Adr and Alibaba Group Holdings 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.