Correlation Between Pinduoduo and Western Digital

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

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

Diversification Opportunities for Pinduoduo and Western Digital

-0.75

Correlation Coefficient

Pinduoduo  Western Digital

Pay attention - limited upside

The 3 months correlation between Pinduoduo and Western is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Pinduoduo and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital and Pinduoduo 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 Pinduoduo are associated (or correlated) with Western Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Digital has no effect on the direction of Pinduoduo i.e., Pinduoduo and Western Digital go up and down completely randomly.

Pair Corralation between Pinduoduo and Western Digital

Considering the 90-day investment horizon Pinduoduo is expected to under-perform the Western Digital. In addition to that, Pinduoduo is 1.03 times more volatile than Western Digital. It trades about -0.2 of its total potential returns per unit of risk. Western Digital is currently generating about 0.32 per unit of volatility. If you would invest  5,981  in Western Digital on January 19, 2024 and sell it today you would earn a total of  1,036  from holding Western Digital or generate 17.32% return on investment over 90 days.

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

Pinduoduo  vs.  Western Digital

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. In spite of unsteady performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Western Digital

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Western Digital exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pinduoduo and Western Digital

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

The idea behind Pinduoduo and Western Digital 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 Transaction History module to view history of all your transactions and understand their impact on performance.