Correlation Between Pinduoduo and Etsy

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

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

Diversification Opportunities for Pinduoduo and Etsy

-0.39

Correlation Coefficient

Pinduoduo  Etsy

Very good diversification

The 3 months correlation between Pinduoduo and Etsy is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Pinduoduo and Etsy Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Etsy Inc and Pinduoduo 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 Pinduoduo are associated (or correlated) with Etsy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Etsy Inc has no effect on the direction of Pinduoduo i.e., Pinduoduo and Etsy go up and down completely randomly.

Pair Corralation between Pinduoduo and Etsy

Assuming the 90 days trading horizon Pinduoduo is expected to generate 0.35 times more return on investment than Etsy. However, Pinduoduo is 2.84 times less risky than Etsy. It trades about 0.08 of its potential returns per unit of risk. Etsy Inc is currently generating about -0.01 per unit of risk. If you would invest  6,024  in Pinduoduo on December 30, 2024 and sell it today you would earn a total of  776.00  from holding Pinduoduo or generate 12.88% return on investment over 90 days.

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

Pinduoduo  vs.  Etsy Inc

Pinduoduo

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pinduoduo are ranked lower than 6 (%) 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.

Etsy Inc

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Pinduoduo and Etsy

The main advantage of trading using opposite Pinduoduo and Etsy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pinduoduo position performs unexpectedly, Etsy 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 Etsy will offset losses from the drop in Etsy's long position.

The idea behind Pinduoduo and Etsy Inc 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.