Correlation Between JD and Sea

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

By analyzing existing cross correlation between JD Inc and Sea Limited, you can compare the effects of market volatilities on JD and Sea 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 Sea. Check out your portfolio center. Please also check ongoing floating volatility patterns of JD and Sea.

Diversification Opportunities for JD and Sea

0.54

Correlation Coefficient

JD  Sea

Very weak diversification

The 3 months correlation between JD and Sea is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding JD Inc and Sea Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea Limited 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 are associated (or correlated) with Sea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea Limited has no effect on the direction of JD i.e., JD and Sea go up and down completely randomly.

Pair Corralation between JD and Sea

Assuming the 90 days trading horizon JD Inc is expected to generate 1.85 times more return on investment than Sea. However, JD is 1.85 times more volatile than Sea Limited. It trades about 0.19 of its potential returns per unit of risk. Sea Limited is currently generating about 0.29 per unit of risk. If you would invest  2,501  in JD Inc on September 12, 2024 and sell it today you would earn a total of  1,473  from holding JD Inc or generate 58.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

JD Inc  vs.  Sea Limited

JD Inc

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in JD Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, JD sustained solid returns over the last few months and may actually be approaching a breakup point.

Sea Limited

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sea Limited are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Sea sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with JD and Sea

The main advantage of trading using opposite JD and Sea positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JD position performs unexpectedly, Sea 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 Sea will offset losses from the drop in Sea's long position.

The idea behind JD Inc and Sea Limited 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.