Correlation Between Sea and Vipshop Holdings

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

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

Diversification Opportunities for Sea and Vipshop Holdings

0.38

Correlation Coefficient

Sea  Vipshop Holdings

Weak diversification

The 3 months correlation between Sea and Vipshop is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Sea and Vipshop Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vipshop Holdings and Sea 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 Sea 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 Sea i.e., Sea and Vipshop Holdings go up and down completely randomly.

Pair Corralation between Sea and Vipshop Holdings

Allowing for the 90-day total investment horizon Sea is expected to generate 1.39 times more return on investment than Vipshop Holdings. However, Sea is 1.39 times more volatile than Vipshop Holdings Limited. It trades about 0.29 of its potential returns per unit of risk. Vipshop Holdings Limited is currently generating about -0.14 per unit of risk. If you would invest  9,599  in Sea on August 30, 2024 and sell it today you would earn a total of  1,972  from holding Sea or generate 20.54% return on investment over 90 days.

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

Sea  vs.  Vipshop Holdings Limited

Sea

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

Vipshop Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vipshop Holdings Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Vipshop Holdings may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Sea and Vipshop Holdings

The main advantage of trading using opposite Sea and Vipshop Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sea 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 Sea 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.