Correlation Between Alliance Entertainment and IQIYI

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

By analyzing existing cross correlation between Alliance Entertainment Holding and iQIYI Inc, you can compare the effects of market volatilities on Alliance Entertainment and IQIYI 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 Alliance Entertainment with a short position of IQIYI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alliance Entertainment and IQIYI.

Diversification Opportunities for Alliance Entertainment and IQIYI

0.71

Correlation Coefficient

Alliance Entertainment  IQIYI

Poor diversification

The 3 months correlation between Alliance and IQIYI is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Entertainment Holding and iQIYI Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iQIYI Inc and Alliance Entertainment 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 Alliance Entertainment Holding are associated (or correlated) with IQIYI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iQIYI Inc has no effect on the direction of Alliance Entertainment i.e., Alliance Entertainment and IQIYI go up and down completely randomly.

Pair Corralation between Alliance Entertainment and IQIYI

Assuming the 90 days horizon Alliance Entertainment Holding is expected to generate 3.61 times more return on investment than IQIYI. However, Alliance Entertainment is 3.61 times more volatile than iQIYI Inc. It trades about 0.15 of its potential returns per unit of risk. iQIYI Inc is currently generating about -0.04 per unit of risk. If you would invest  4.50  in Alliance Entertainment Holding on March 2, 2024 and sell it today you would earn a total of  0.50  from holding Alliance Entertainment Holding or generate 11.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	42.86%
Values	Daily Returns

Alliance Entertainment Holding  vs.  iQIYI Inc

Alliance Entertainment

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Alliance Entertainment Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly uncertain basic indicators, Alliance Entertainment showed solid returns over the last few months and may actually be approaching a breakup point.

iQIYI Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iQIYI Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, IQIYI reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alliance Entertainment and IQIYI

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

The idea behind Alliance Entertainment Holding and iQIYI 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.

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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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.