Correlation Between Best Buy and JD
Can any of the company-specific risk be diversified away by investing in both Best Buy and JD 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 Best Buy and JD into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Best Buy Co and JD Inc Adr, you can compare the effects of market volatilities on Best Buy and JD 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 Best Buy with a short position of JD. Check out your portfolio center. Please also check ongoing floating volatility patterns of Best Buy and JD.
Diversification Opportunities for Best Buy and JD
Poor diversification
The 3 months correlation between Best and JD is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Best Buy Co and JD Inc Adr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Inc Adr and Best Buy 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 Best Buy Co are associated (or correlated) with JD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Inc Adr has no effect on the direction of Best Buy i.e., Best Buy and JD go up and down completely randomly.
Pair Corralation between Best Buy and JD
Considering the 90-day investment horizon Best Buy Co is expected to under-perform the JD. But the stock apears to be less risky and, when comparing its historical volatility, Best Buy Co is 1.53 times less risky than JD. The stock trades about -0.22 of its potential returns per unit of risk. The JD Inc Adr is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 2,564 in JD Inc Adr on January 26, 2024 and sell it today you would earn a total of 263.00 from holding JD Inc Adr or generate 10.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Best Buy Co vs. JD Inc Adr
Performance |
| Timeline |
| Best Buy |
| JD Inc Adr |
Best Buy and JD Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Best Buy and JD
The main advantage of trading using opposite Best Buy and JD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Best Buy position performs unexpectedly, JD 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 JD will offset losses from the drop in JD's long position.The idea behind Best Buy Co and JD 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 the Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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