Correlation Between Meituan ADR and Meituan

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

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

Diversification Opportunities for Meituan ADR and Meituan

1.0

Correlation Coefficient

Meituan ADR  Meituan

No risk reduction

The 3 months correlation between Meituan and Meituan is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Meituan ADR and Meituan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meituan and Meituan ADR 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 Meituan ADR are associated (or correlated) with Meituan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meituan has no effect on the direction of Meituan ADR i.e., Meituan ADR and Meituan go up and down completely randomly.

Pair Corralation between Meituan ADR and Meituan

Assuming the 90 days horizon Meituan ADR is expected to generate 1.18 times less return on investment than Meituan. In addition to that, Meituan ADR is 1.04 times more volatile than Meituan. It trades about 0.14 of its total potential returns per unit of risk. Meituan is currently generating about 0.17 per unit of volatility. If you would invest  1,262  in Meituan on February 1, 2024 and sell it today you would earn a total of  128.00  from holding Meituan or generate 10.14% return on investment over 90 days.

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

Meituan ADR  vs.  Meituan

Meituan ADR

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Meituan ADR are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Meituan ADR showed solid returns over the last few months and may actually be approaching a breakup point.

Meituan

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Meituan are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Meituan reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Meituan ADR and Meituan

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

The idea behind Meituan ADR and Meituan 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.