Correlation Between Meituan and Broadwind

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

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

Diversification Opportunities for Meituan and Broadwind

-0.22

Correlation Coefficient

Meituan  Broadwind

Very good diversification

The 3 months correlation between Meituan and Broadwind is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Meituan and Broadwind in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadwind and Meituan 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 are associated (or correlated) with Broadwind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Broadwind has no effect on the direction of Meituan i.e., Meituan and Broadwind go up and down completely randomly.

Pair Corralation between Meituan and Broadwind

Assuming the 90 days horizon Meituan is expected to generate 1.28 times more return on investment than Broadwind. However, Meituan is 1.28 times more volatile than Broadwind. It trades about 0.14 of its potential returns per unit of risk. Broadwind is currently generating about -0.04 per unit of risk. If you would invest  1,407  in Meituan on September 13, 2024 and sell it today you would earn a total of  688.00  from holding Meituan or generate 48.9% return on investment over 90 days.

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

Meituan  vs.  Broadwind

Meituan

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Meituan are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Meituan reported solid returns over the last few months and may actually be approaching a breakup point.

Broadwind

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Broadwind has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Meituan and Broadwind

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

The idea behind Meituan and Broadwind 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.