Correlation Between Western Digital and Pinduoduo

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

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

Diversification Opportunities for Western Digital and Pinduoduo

-0.71

Correlation Coefficient

Western Digital  Pinduoduo

Pay attention - limited upside

The 3 months correlation between Western and Pinduoduo is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and Pinduoduo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pinduoduo and Western Digital 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 Western Digital 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 Western Digital i.e., Western Digital and Pinduoduo go up and down completely randomly.

Pair Corralation between Western Digital and Pinduoduo

Considering the 90-day investment horizon Western Digital is expected to generate 1.12 times less return on investment than Pinduoduo. But when comparing it to its historical volatility, Western Digital is 1.09 times less risky than Pinduoduo. It trades about 0.07 of its potential returns per unit of risk. Pinduoduo is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  11,987  in Pinduoduo on January 24, 2024 and sell it today you would earn a total of  427.00  from holding Pinduoduo or generate 3.56% return on investment over 90 days.

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

Western Digital  vs.  Pinduoduo

Western Digital

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting fundamental indicators, Western Digital exhibited 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. In spite of latest unfluctuating performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Western Digital and Pinduoduo

The main advantage of trading using opposite Western Digital and Pinduoduo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Digital 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 Western Digital 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.

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.