Correlation Between Alibaba Group and Baozun Inc

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Can any of the company-specific risk be diversified away by investing in both Alibaba Group and Baozun Inc 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 Baozun Inc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alibaba Group Holding and Baozun Inc ADR, you can compare the effects of market volatilities on Alibaba Group and Baozun Inc 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 Baozun Inc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alibaba Group and Baozun Inc.

Diversification Opportunities for Alibaba Group and Baozun Inc

0.9
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Alibaba and Baozun is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Baozun Inc ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baozun Inc ADR 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 Holding are associated (or correlated) with Baozun Inc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baozun Inc ADR has no effect on the direction of Alibaba Group i.e., Alibaba Group and Baozun Inc go up and down completely randomly.

Pair Corralation between Alibaba Group and Baozun Inc

Given the investment horizon of 90 days Alibaba Group Holding is expected to generate 0.76 times more return on investment than Baozun Inc. However, Alibaba Group Holding is 1.32 times less risky than Baozun Inc. It trades about -0.04 of its potential returns per unit of risk. Baozun Inc ADR is currently generating about -0.04 per unit of risk. If you would invest  25,797  in Alibaba Group Holding on May 12, 2022 and sell it today you would lose (16,561)  from holding Alibaba Group Holding or give up 64.2% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Alibaba Group Holding  vs.  Baozun Inc ADR

 Performance (%) 
       Timeline  
Alibaba Group Holding 
Alibaba Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Group Holding are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental drivers, Alibaba Group sustained solid returns over the last few months and may actually be approaching a breakup point.

Alibaba Price Channel

Baozun Inc ADR 
Baozun Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Baozun Inc ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Baozun Inc disclosed solid returns over the last few months and may actually be approaching a breakup point.

Baozun Price Channel

Alibaba Group and Baozun Inc Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alibaba Group and Baozun Inc

The main advantage of trading using opposite Alibaba Group and Baozun Inc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alibaba Group position performs unexpectedly, Baozun Inc 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 Baozun Inc will offset losses from the drop in Baozun Inc's long position.
The idea behind Alibaba Group Holding and Baozun Inc ADR 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.
Check out your portfolio center. 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 Focused Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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