Correlation Between Liquidity Services and Vipshop Holdings

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

By analyzing existing cross correlation between Liquidity Services and Vipshop Holdings Limited, you can compare the effects of market volatilities on Liquidity Services and Vipshop Holdings 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 Liquidity Services with a short position of Vipshop Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liquidity Services and Vipshop Holdings.

Diversification Opportunities for Liquidity Services and Vipshop Holdings

-0.46

Correlation Coefficient

Liquidity Services  Vipshop Holdings

Very good diversification

The 3 months correlation between Liquidity and Vipshop is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Liquidity Services and Vipshop Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vipshop Holdings and Liquidity Services 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 Liquidity Services are associated (or correlated) with Vipshop Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vipshop Holdings has no effect on the direction of Liquidity Services i.e., Liquidity Services and Vipshop Holdings go up and down completely randomly.

Pair Corralation between Liquidity Services and Vipshop Holdings

Given the investment horizon of 90 days Liquidity Services is expected to under-perform the Vipshop Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Liquidity Services is 1.09 times less risky than Vipshop Holdings. The stock trades about -0.01 of its potential returns per unit of risk. The Vipshop Holdings Limited is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,328  in Vipshop Holdings Limited on December 30, 2024 and sell it today you would earn a total of  285.00  from holding Vipshop Holdings Limited or generate 21.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Liquidity Services  vs.  Vipshop Holdings Limited

Liquidity Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Liquidity Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Liquidity Services is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Vipshop Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vipshop Holdings Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Vipshop Holdings unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Liquidity Services and Vipshop Holdings

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

The idea behind Liquidity Services and Vipshop Holdings 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.