Correlation Between Meituan and Redbubble

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

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

Diversification Opportunities for Meituan and Redbubble

-0.34

Correlation Coefficient

Meituan  Redbubble

Very good diversification

The 3 months correlation between Meituan and Redbubble is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Meituan and Redbubble Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redbubble Limited 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 Redbubble. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redbubble Limited has no effect on the direction of Meituan i.e., Meituan and Redbubble go up and down completely randomly.

Pair Corralation between Meituan and Redbubble

Assuming the 90 days horizon Meituan is expected to generate 0.71 times more return on investment than Redbubble. However, Meituan is 1.42 times less risky than Redbubble. It trades about 0.01 of its potential returns per unit of risk. Redbubble Limited is currently generating about 0.0 per unit of risk. If you would invest  2,314  in Meituan on September 3, 2024 and sell it today you would lose (264.00) from holding Meituan or give up 11.41% of portfolio value over 90 days.

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

Meituan  vs.  Redbubble Limited

Meituan

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Meituan are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Meituan reported solid returns over the last few months and may actually be approaching a breakup point.

Redbubble Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Redbubble Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Meituan and Redbubble

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

The idea behind Meituan and Redbubble Limited 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.