Correlation Between PDD Holdings and Alibaba Group

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

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

Diversification Opportunities for PDD Holdings and Alibaba Group

0.97

Correlation Coefficient

PDD Holdings  Alibaba Group

Almost no diversification

The 3 months correlation between PDD and Alibaba is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding PDD Holdings 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 PDD Holdings 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 PDD Holdings 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 PDD Holdings i.e., PDD Holdings and Alibaba Group go up and down completely randomly.

Pair Corralation between PDD Holdings and Alibaba Group

Considering the 90-day investment horizon PDD Holdings is expected to generate 1.32 times more return on investment than Alibaba Group. However, PDD Holdings is 1.32 times more volatile than Alibaba Group Holding. It trades about 0.03 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  9,611  in PDD Holdings on August 30, 2024 and sell it today you would earn a total of  269.00  from holding PDD Holdings or generate 2.8% return on investment over 90 days.

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

PDD Holdings  vs.  Alibaba Group Holding

PDD Holdings

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PDD Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, PDD Holdings may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Alibaba Group Holding

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Group Holding are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Alibaba Group is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with PDD Holdings and Alibaba Group

The main advantage of trading using opposite PDD Holdings and Alibaba Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PDD Holdings 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 PDD Holdings 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.

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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..