Correlation Between Meta Platforms and DouYu International

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

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

Diversification Opportunities for Meta Platforms and DouYu International

-0.42

Correlation Coefficient

Meta Platforms  DouYu International

Very good diversification

The 3 months correlation between Meta and DouYu is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Meta Platforms and DouYu International Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DouYu International and Meta Platforms 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 Meta Platforms are associated (or correlated) with DouYu International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DouYu International has no effect on the direction of Meta Platforms i.e., Meta Platforms and DouYu International go up and down completely randomly.

Pair Corralation between Meta Platforms and DouYu International

Allowing for the 90-day total investment horizon Meta Platforms is expected to under-perform the DouYu International. But the stock apears to be less risky and, when comparing its historical volatility, Meta Platforms is 1.24 times less risky than DouYu International. The stock trades about -0.15 of its potential returns per unit of risk. The DouYu International Holdings is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,520  in DouYu International Holdings on February 6, 2024 and sell it today you would lose (581.67) from holding DouYu International Holdings or give up 38.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	5.86%
Values	Daily Returns

Meta Platforms  vs.  DouYu International Holdings

Meta Platforms

Risk-Adjusted Performance

0 of 100

Very Weak

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

DouYu International

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DouYu International Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, DouYu International unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Meta Platforms and DouYu International

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

The idea behind Meta Platforms and DouYu International 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 Global Correlations module to find global opportunities by holding instruments from different markets.