Correlation Between Meituan and ThredUp

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

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

Diversification Opportunities for Meituan and ThredUp

-0.15

Correlation Coefficient

Meituan  ThredUp

Good diversification

The 3 months correlation between Meituan and ThredUp is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Meituan and ThredUp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ThredUp 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 ThredUp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ThredUp has no effect on the direction of Meituan i.e., Meituan and ThredUp go up and down completely randomly.

Pair Corralation between Meituan and ThredUp

Assuming the 90 days horizon Meituan is expected to generate 1.54 times less return on investment than ThredUp. But when comparing it to its historical volatility, Meituan is 1.49 times less risky than ThredUp. It trades about 0.14 of its potential returns per unit of risk. ThredUp is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  98.00  in ThredUp on September 13, 2024 and sell it today you would earn a total of  82.00  from holding ThredUp or generate 83.67% return on investment over 90 days.

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

Meituan  vs.  ThredUp

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 inconsistent technical and fundamental indicators, Meituan reported solid returns over the last few months and may actually be approaching a breakup point.

ThredUp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ThredUp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, ThredUp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Meituan and ThredUp

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

The idea behind Meituan and ThredUp 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.