Correlation Between ASOS Plc and Meituan ADR

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

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

Diversification Opportunities for ASOS Plc and Meituan ADR

-0.31

Correlation Coefficient

ASOS Plc  Meituan ADR

Very good diversification

The 3 months correlation between ASOS and Meituan is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding ASOS plc PK and Meituan ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meituan ADR and ASOS Plc 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 ASOS plc PK are associated (or correlated) with Meituan ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meituan ADR has no effect on the direction of ASOS Plc i.e., ASOS Plc and Meituan ADR go up and down completely randomly.

Pair Corralation between ASOS Plc and Meituan ADR

Assuming the 90 days horizon ASOS Plc is expected to generate 4.6 times less return on investment than Meituan ADR. But when comparing it to its historical volatility, ASOS plc PK is 1.38 times less risky than Meituan ADR. It trades about 0.04 of its potential returns per unit of risk. Meituan ADR is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,701  in Meituan ADR on September 5, 2024 and sell it today you would earn a total of  1,533  from holding Meituan ADR or generate 56.76% return on investment over 90 days.

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

ASOS plc PK  vs.  Meituan ADR

ASOS plc PK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ASOS plc PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Meituan ADR

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Meituan ADR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile technical and fundamental indicators, Meituan ADR showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ASOS Plc and Meituan ADR

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

The idea behind ASOS plc PK and Meituan ADR 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.