Correlation Between CVS Health and Pinduoduo

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

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

Diversification Opportunities for CVS Health and Pinduoduo

0.4

Correlation Coefficient

CVS Health  Pinduoduo

Very weak diversification

The 3 months correlation between CVS and Pinduoduo is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and Pinduoduo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pinduoduo and CVS Health 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 CVS Health 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 CVS Health i.e., CVS Health and Pinduoduo go up and down completely randomly.

Pair Corralation between CVS Health and Pinduoduo

Assuming the 90 days trading horizon CVS Health is expected to under-perform the Pinduoduo. But the stock apears to be less risky and, when comparing its historical volatility, CVS Health is 1.31 times less risky than Pinduoduo. The stock trades about -0.03 of its potential returns per unit of risk. The Pinduoduo is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,462  in Pinduoduo on September 15, 2024 and sell it today you would earn a total of  769.00  from holding Pinduoduo or generate 14.08% return on investment over 90 days.

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

CVS Health  vs.  Pinduoduo

CVS Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CVS Health is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pinduoduo

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pinduoduo are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Pinduoduo sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CVS Health and Pinduoduo

The main advantage of trading using opposite CVS Health and Pinduoduo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health 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 CVS Health 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.