Correlation Between Xtrackers LevDAX and Meituan

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

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

Diversification Opportunities for Xtrackers LevDAX and Meituan

0.73

Correlation Coefficient

Xtrackers LevDAX  Meituan

Poor diversification

The 3 months correlation between Xtrackers and Meituan is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers LevDAX and Meituan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meituan and Xtrackers LevDAX 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 Xtrackers LevDAX 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 Xtrackers LevDAX i.e., Xtrackers LevDAX and Meituan go up and down completely randomly.

Pair Corralation between Xtrackers LevDAX and Meituan

Assuming the 90 days trading horizon Xtrackers LevDAX is expected to generate 0.47 times more return on investment than Meituan. However, Xtrackers LevDAX is 2.14 times less risky than Meituan. It trades about -0.01 of its potential returns per unit of risk. Meituan is currently generating about -0.13 per unit of risk. If you would invest  18,532  in Xtrackers LevDAX on September 1, 2024 and sell it today you would lose (110.00) from holding Xtrackers LevDAX or give up 0.59% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	91.3%
Values	Daily Returns

Xtrackers LevDAX  vs.  Meituan

Xtrackers LevDAX

Risk-Adjusted Performance

0 of 100

Very Weak

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

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.

Pair Trading with Xtrackers LevDAX and Meituan

The main advantage of trading using opposite Xtrackers LevDAX and Meituan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers LevDAX 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 Xtrackers LevDAX 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.