Correlation Between Wayfair and PDD Holdings

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

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

Diversification Opportunities for Wayfair and PDD Holdings

-0.47

Correlation Coefficient

Wayfair  PDD Holdings

Very good diversification

The 3 months correlation between Wayfair and PDD is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and PDD Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PDD Holdings and Wayfair 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 Wayfair 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 Wayfair i.e., Wayfair and PDD Holdings go up and down completely randomly.

Pair Corralation between Wayfair and PDD Holdings

Taking into account the 90-day investment horizon Wayfair is expected to under-perform the PDD Holdings. In addition to that, Wayfair is 1.36 times more volatile than PDD Holdings. It trades about -0.05 of its total potential returns per unit of risk. PDD Holdings is currently generating about 0.13 per unit of volatility. If you would invest  9,887  in PDD Holdings on December 26, 2024 and sell it today you would earn a total of  2,359  from holding PDD Holdings or generate 23.86% return on investment over 90 days.

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

Wayfair  vs.  PDD Holdings

Wayfair

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wayfair has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

PDD Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PDD Holdings are ranked lower than 10 (%) 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 Wayfair and PDD Holdings

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

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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.