Correlation Between Alibaba Group and Etsy

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Can any of the company-specific risk be diversified away by investing in both Alibaba Group and Etsy 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 Etsy 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 Etsy Inc, you can compare the effects of market volatilities on Alibaba Group and Etsy 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 Etsy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alibaba Group and Etsy.

Diversification Opportunities for Alibaba Group and Etsy

-0.16
  Correlation Coefficient

Good diversification

The 3 months correlation between Alibaba and Etsy is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Etsy Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Etsy 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 Holding are associated (or correlated) with Etsy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Etsy Inc has no effect on the direction of Alibaba Group i.e., Alibaba Group and Etsy go up and down completely randomly.

Pair Corralation between Alibaba Group and Etsy

Given the investment horizon of 90 days Alibaba Group Holding is expected to under-perform the Etsy. But the stock apears to be less risky and, when comparing its historical volatility, Alibaba Group Holding is 1.15 times less risky than Etsy. The stock trades about -0.04 of its potential returns per unit of risk. The Etsy Inc is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  11,175  in Etsy Inc on May 11, 2022 and sell it today you would lose (288.00)  from holding Etsy Inc or give up 2.58% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Alibaba Group Holding  vs.  Etsy Inc

 Performance (%) 
       Timeline  
Alibaba Group Holding 
Alibaba Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Group Holding are ranked lower than 4 (%) 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

Etsy Inc 
Etsy Performance
10 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Etsy Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Etsy showed solid returns over the last few months and may actually be approaching a breakup point.

Etsy Price Channel

Alibaba Group and Etsy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alibaba Group and Etsy

The main advantage of trading using opposite Alibaba Group and Etsy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alibaba Group position performs unexpectedly, Etsy 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 Etsy will offset losses from the drop in Etsy's long position.
The idea behind Alibaba Group Holding and Etsy 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.
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.

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