Correlation Between Etsy and Alibaba Group

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

Diversification Opportunities for Etsy and Alibaba Group

-0.22
  Correlation Coefficient

Very good diversification

The 3 months correlation between Etsy and Alibaba is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Etsy Inc and Alibaba Group Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alibaba Group Holding and Etsy 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 Etsy Inc are associated (or correlated) with Alibaba Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alibaba Group Holding has no effect on the direction of Etsy i.e., Etsy and Alibaba Group go up and down completely randomly.

Pair Corralation between Etsy and Alibaba Group

Given the investment horizon of 90 days Etsy Inc is expected to generate 1.16 times more return on investment than Alibaba Group. However, Etsy is 1.16 times more volatile than Alibaba Group Holding. It trades about 0.02 of its potential returns per unit of risk. Alibaba Group Holding is currently generating about -0.04 per unit of risk. If you would invest  12,691  in Etsy Inc on May 18, 2022 and sell it today you would lose (605.00)  from holding Etsy Inc or give up 4.77% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Etsy Inc  vs.  Alibaba Group Holding

 Performance (%) 
       Timeline  
Etsy Inc 
Etsy Performance
13 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Etsy Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Etsy showed solid returns over the last few months and may actually be approaching a breakup point.

Etsy Price Channel

Alibaba Group Holding 
Alibaba Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Group Holding are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting fundamental drivers, Alibaba Group may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Alibaba Price Channel

Etsy and Alibaba Group Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Etsy and Alibaba Group

The main advantage of trading using opposite Etsy and Alibaba Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Etsy position performs unexpectedly, Alibaba Group 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 Alibaba Group will offset losses from the drop in Alibaba Group's long position.
The idea behind Etsy Inc and Alibaba Group Holding 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.

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