Correlation Between Alibaba Group and PDD Holdings

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

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

Diversification Opportunities for Alibaba Group and PDD Holdings

0.88

Correlation Coefficient

Alibaba Group  PDD Holdings

Very poor diversification

The 3 months correlation between Alibaba and PDD is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and PDD Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PDD Holdings and Alibaba Group 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 Alibaba Group Holding are associated (or correlated) with PDD Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PDD Holdings has no effect on the direction of Alibaba Group i.e., Alibaba Group and PDD Holdings go up and down completely randomly.

Pair Corralation between Alibaba Group and PDD Holdings

Given the investment horizon of 90 days Alibaba Group Holding is expected to generate 0.97 times more return on investment than PDD Holdings. However, Alibaba Group Holding is 1.03 times less risky than PDD Holdings. It trades about 0.25 of its potential returns per unit of risk. PDD Holdings is currently generating about 0.13 per unit of risk. If you would invest  8,737  in Alibaba Group Holding on November 28, 2024 and sell it today you would earn a total of  4,664  from holding Alibaba Group Holding or generate 53.38% return on investment over 90 days.

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

Alibaba Group Holding  vs.  PDD Holdings

Alibaba Group Holding

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Group Holding are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental drivers, Alibaba Group sustained solid returns over the last few months and may actually be approaching a breakup point.

PDD Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PDD Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, PDD Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alibaba Group and PDD Holdings

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

The idea behind Alibaba Group Holding and PDD Holdings 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.