Correlation Between Alibaba Group and Pinduoduo

Can any of the company-specific risk be diversified away by investing in both Alibaba Group 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 Alibaba Group and Pinduoduo 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 Pinduoduo, you can compare the effects of market volatilities on Alibaba Group 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 Alibaba Group with a short position of Pinduoduo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alibaba Group and Pinduoduo.

Diversification Opportunities for Alibaba Group and Pinduoduo

0.87

Correlation Coefficient

Alibaba Group  Pinduoduo

Very poor diversification

The 3 months correlation between Alibaba and Pinduoduo is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Pinduoduo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pinduoduo 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 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 Alibaba Group i.e., Alibaba Group and Pinduoduo go up and down completely randomly.

Pair Corralation between Alibaba Group and Pinduoduo

Assuming the 90 days trading horizon Alibaba Group Holding is expected to under-perform the Pinduoduo. But the stock apears to be less risky and, when comparing its historical volatility, Alibaba Group Holding is 1.33 times less risky than Pinduoduo. The stock trades about -0.07 of its potential returns per unit of risk. The Pinduoduo is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  7,100  in Pinduoduo on October 26, 2024 and sell it today you would lose (812.00) from holding Pinduoduo or give up 11.44% of portfolio value over 90 days.

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

Alibaba Group Holding  vs.  Pinduoduo

Alibaba Group Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alibaba Group Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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 latest uncertain performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Alibaba Group and Pinduoduo

The main advantage of trading using opposite Alibaba Group and Pinduoduo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alibaba Group 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 Alibaba Group Holding 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.