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 Holdings and JD Inc, 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

0.65

Correlation Coefficient

Alibaba Group  JD

Poor diversification

The 3 months correlation between Alibaba and JD is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holdings and JD Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Inc 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 Holdings 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 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

Assuming the 90 days trading horizon Alibaba Group Holdings is expected to generate 0.94 times more return on investment than JD. However, Alibaba Group Holdings is 1.06 times less risky than JD. It trades about 0.23 of its potential returns per unit of risk. JD Inc is currently generating about 0.09 per unit of risk. 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	100.0%
Values	Daily Returns

Alibaba Group Holdings  vs.  JD Inc

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.

JD Inc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in JD Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, JD reported 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 Holdings and JD Inc 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.