Correlation Between Liquidity Services and PDD Holdings

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

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

Diversification Opportunities for Liquidity Services and PDD Holdings

-0.15

Correlation Coefficient

Liquidity Services  PDD Holdings

Good diversification

The 3 months correlation between Liquidity and PDD is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Liquidity Services and PDD Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PDD Holdings and Liquidity Services 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 Liquidity Services 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 Liquidity Services i.e., Liquidity Services and PDD Holdings go up and down completely randomly.

Pair Corralation between Liquidity Services and PDD Holdings

Given the investment horizon of 90 days Liquidity Services is expected to under-perform the PDD Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Liquidity Services is 1.22 times less risky than PDD Holdings. The stock trades about -0.01 of its potential returns per unit of risk. The PDD Holdings is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  9,439  in PDD Holdings on December 28, 2024 and sell it today you would earn a total of  2,606  from holding PDD Holdings or generate 27.61% return on investment over 90 days.

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

Liquidity Services  vs.  PDD Holdings

Liquidity Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Liquidity Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Liquidity Services is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

PDD Holdings

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PDD Holdings are ranked lower than 11 (%) 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 Liquidity Services and PDD Holdings

The main advantage of trading using opposite Liquidity Services and PDD Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Liquidity Services 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 Liquidity Services 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.