Correlation Between Groupon and PDD Holdings

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

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

Diversification Opportunities for Groupon and PDD Holdings

-0.21

Correlation Coefficient

Groupon  PDD Holdings

Very good diversification

The 3 months correlation between Groupon and PDD is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Groupon and PDD Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PDD Holdings and Groupon 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 Groupon 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 Groupon i.e., Groupon and PDD Holdings go up and down completely randomly.

Pair Corralation between Groupon and PDD Holdings

Given the investment horizon of 90 days Groupon is expected to generate 1.98 times more return on investment than PDD Holdings. However, Groupon is 1.98 times more volatile than PDD Holdings. It trades about 0.25 of its potential returns per unit of risk. PDD Holdings is currently generating about 0.02 per unit of risk. If you would invest  914.00  in Groupon on September 27, 2024 and sell it today you would earn a total of  296.00  from holding Groupon or generate 32.39% return on investment over 90 days.

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

Groupon  vs.  PDD Holdings

Groupon

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Groupon are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Groupon displayed solid returns over the last few months and may actually be approaching a breakup point.

PDD Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PDD Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Groupon and PDD Holdings

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

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.