Correlation Between JD and Pinduoduo

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

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

Diversification Opportunities for JD and Pinduoduo

0.72

Correlation Coefficient

JD  Pinduoduo

Poor diversification

The 3 months correlation between JD and Pinduoduo is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding JD Inc and Pinduoduo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pinduoduo and JD 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 JD Inc are associated (or correlated) with Pinduoduo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pinduoduo has no effect on the direction of JD i.e., JD and Pinduoduo go up and down completely randomly.

Pair Corralation between JD and Pinduoduo

Assuming the 90 days trading horizon JD Inc is expected to generate 0.9 times more return on investment than Pinduoduo. However, JD Inc is 1.11 times less risky than Pinduoduo. It trades about 0.1 of its potential returns per unit of risk. Pinduoduo is currently generating about 0.02 per unit of risk. If you would invest  1,628  in JD Inc on September 25, 2024 and sell it today you would earn a total of  99.00  from holding JD Inc or generate 6.08% return on investment over 90 days.

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

JD Inc  vs.  Pinduoduo

JD Inc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in JD Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, JD reported solid returns over the last few months and may actually be approaching a breakup point.

Pinduoduo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pinduoduo has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Pinduoduo is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with JD and Pinduoduo

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

The idea behind JD Inc and Pinduoduo 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.