Correlation Between Natural Health and PDD Holdings

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

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

Diversification Opportunities for Natural Health and PDD Holdings

0.72

Correlation Coefficient

Natural Health  PDD Holdings

Poor diversification

The 3 months correlation between Natural and PDD is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Natural Health Trend and PDD Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PDD Holdings and Natural 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 Natural Health Trend 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 Natural Health i.e., Natural Health and PDD Holdings go up and down completely randomly.

Pair Corralation between Natural Health and PDD Holdings

Given the investment horizon of 90 days Natural Health is expected to generate 1.85 times less return on investment than PDD Holdings. But when comparing it to its historical volatility, Natural Health Trend is 1.22 times less risky than PDD Holdings. It trades about 0.11 of its potential returns per unit of risk. PDD Holdings is currently generating about 0.16 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  2,997  from holding PDD Holdings or generate 31.75% return on investment over 90 days.

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

Natural Health Trend  vs.  PDD Holdings

Natural Health Trend

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Health Trend are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Natural Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

PDD Holdings

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PDD Holdings are ranked lower than 12 (%) 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 Natural Health and PDD Holdings

The main advantage of trading using opposite Natural Health and PDD Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Natural Health 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 Natural Health Trend 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.