Correlation Between Meituan and Carsales

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

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

Diversification Opportunities for Meituan and Carsales

0.26

Correlation Coefficient

Meituan  Carsales

Modest diversification

The 3 months correlation between Meituan and Carsales is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Meituan and CarsalesCom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarsalesCom 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 Carsales. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarsalesCom has no effect on the direction of Meituan i.e., Meituan and Carsales go up and down completely randomly.

Pair Corralation between Meituan and Carsales

Assuming the 90 days horizon Meituan is expected to generate 2.03 times more return on investment than Carsales. However, Meituan is 2.03 times more volatile than CarsalesCom. It trades about 0.0 of its potential returns per unit of risk. CarsalesCom is currently generating about -0.11 per unit of risk. If you would invest  2,047  in Meituan on December 1, 2024 and sell it today you would lose (55.00) from holding Meituan or give up 2.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Meituan  vs.  CarsalesCom

Meituan

Risk-Adjusted Performance

Very Weak

Over the last 90 days Meituan has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Meituan is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

CarsalesCom

Risk-Adjusted Performance

Very Weak

Over the last 90 days CarsalesCom 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 Carsales

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

The idea behind Meituan and CarsalesCom 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.