Correlation Between Pinduoduo and Meituan

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

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

Diversification Opportunities for Pinduoduo and Meituan

0.83

Correlation Coefficient

Pinduoduo  Meituan

Very poor diversification

The 3 months correlation between Pinduoduo and Meituan is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Pinduoduo and Meituan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meituan and Pinduoduo 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 Pinduoduo 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 Pinduoduo i.e., Pinduoduo and Meituan go up and down completely randomly.

Pair Corralation between Pinduoduo and Meituan

Assuming the 90 days trading horizon Pinduoduo is expected to under-perform the Meituan. But the stock apears to be less risky and, when comparing its historical volatility, Pinduoduo is 1.09 times less risky than Meituan. The stock trades about -0.27 of its potential returns per unit of risk. The Meituan is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest  2,198  in Meituan on September 3, 2024 and sell it today you would lose (278.00) from holding Meituan or give up 12.65% of portfolio value over 90 days.

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

Pinduoduo  vs.  Meituan

Pinduoduo

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pinduoduo are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Pinduoduo may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Meituan

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Meituan are ranked lower than 10 (%) 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.

Pair Trading with Pinduoduo and Meituan

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

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 Anywhere module to track or share privately all of your investments from the convenience of any device.