Correlation Between Chewy and PDD Holdings

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

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

Diversification Opportunities for Chewy and PDD Holdings

-0.23

Correlation Coefficient

Chewy  PDD Holdings

Very good diversification

The 3 months correlation between Chewy and PDD is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Chewy Inc and PDD Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PDD Holdings and Chewy 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 Chewy Inc 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 Chewy i.e., Chewy and PDD Holdings go up and down completely randomly.

Pair Corralation between Chewy and PDD Holdings

Given the investment horizon of 90 days Chewy is expected to generate 11.46 times less return on investment than PDD Holdings. In addition to that, Chewy is 1.03 times more volatile than PDD Holdings. It trades about 0.0 of its total potential returns per unit of risk. PDD Holdings is currently generating about 0.02 per unit of volatility. If you would invest  8,874  in PDD Holdings on September 3, 2024 and sell it today you would earn a total of  1,024  from holding PDD Holdings or generate 11.54% return on investment over 90 days.

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

Chewy Inc  vs.  PDD Holdings

Chewy Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chewy Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Chewy showed solid returns over the last few months and may actually be approaching a breakup point.

PDD Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PDD Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, PDD Holdings is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Chewy and PDD Holdings

The main advantage of trading using opposite Chewy and PDD Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chewy 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 Chewy Inc 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.