Correlation Between Etsy and Vipshop Holdings

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

By analyzing existing cross correlation between Etsy Inc and Vipshop Holdings Limited, you can compare the effects of market volatilities on Etsy and Vipshop Holdings 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 Vipshop Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Etsy and Vipshop Holdings.

Diversification Opportunities for Etsy and Vipshop Holdings

-0.26

Correlation Coefficient

Etsy  Vipshop Holdings

Very good diversification

The 3 months correlation between Etsy and Vipshop is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Etsy Inc and Vipshop Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vipshop Holdings 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 Vipshop Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vipshop Holdings has no effect on the direction of Etsy i.e., Etsy and Vipshop Holdings go up and down completely randomly.

Pair Corralation between Etsy and Vipshop Holdings

Assuming the 90 days trading horizon Etsy Inc is expected to generate 1.19 times more return on investment than Vipshop Holdings. However, Etsy is 1.19 times more volatile than Vipshop Holdings Limited. It trades about 0.17 of its potential returns per unit of risk. Vipshop Holdings Limited is currently generating about 0.12 per unit of risk. If you would invest  2,016  in Etsy Inc on September 24, 2024 and sell it today you would earn a total of  244.00  from holding Etsy Inc or generate 12.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Etsy Inc  vs.  Vipshop Holdings Limited

Etsy Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Etsy Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Etsy sustained solid returns over the last few months and may actually be approaching a breakup point.

Vipshop Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vipshop Holdings Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, Vipshop Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Etsy and Vipshop Holdings

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

The idea behind Etsy Inc and Vipshop Holdings Limited 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.