Correlation Between PDD Holdings and Farfetch

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

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

Diversification Opportunities for PDD Holdings and Farfetch

0.37

Correlation Coefficient

PDD Holdings  Farfetch

Weak diversification

The 3 months correlation between PDD and Farfetch is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding PDD Holdings and Farfetch Ltd Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farfetch Class and PDD Holdings 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 PDD Holdings are associated (or correlated) with Farfetch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farfetch Class has no effect on the direction of PDD Holdings i.e., PDD Holdings and Farfetch go up and down completely randomly.

Pair Corralation between PDD Holdings and Farfetch

If you would invest  9,775  in PDD Holdings on September 1, 2024 and sell it today you would lose (119.00) from holding PDD Holdings or give up 1.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	1.59%
Values	Daily Returns

PDD Holdings  vs.  Farfetch Ltd Class

PDD Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PDD Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, PDD Holdings is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Farfetch Class

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Farfetch Ltd Class has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Farfetch is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with PDD Holdings and Farfetch

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

The idea behind PDD Holdings and Farfetch Ltd Class 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 Transaction History module to view history of all your transactions and understand their impact on performance.