Correlation Between Alibaba Group and Meituan
Can any of the company-specific risk be diversified away by investing in both Alibaba Group 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 Alibaba Group and Meituan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alibaba Group Holding and Meituan, you can compare the effects of market volatilities on Alibaba Group 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 Alibaba Group with a short position of Meituan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alibaba Group and Meituan.
Diversification Opportunities for Alibaba Group and Meituan
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Alibaba and Meituan is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Meituan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meituan and Alibaba Group 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 Alibaba Group Holding 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 Alibaba Group i.e., Alibaba Group and Meituan go up and down completely randomly.
Pair Corralation between Alibaba Group and Meituan
Given the investment horizon of 90 days Alibaba Group Holding is expected to under-perform the Meituan. But the stock apears to be less risky and, when comparing its historical volatility, Alibaba Group Holding is 2.0 times less risky than Meituan. The stock trades about -0.23 of its potential returns per unit of risk. The Meituan is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 2,278 in Meituan on September 1, 2024 and sell it today you would earn a total of 71.00 from holding Meituan or generate 3.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Alibaba Group Holding vs. Meituan
Performance |
| Timeline |
| Alibaba Group Holding |
| Meituan |
Alibaba Group and Meituan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alibaba Group and Meituan
The main advantage of trading using opposite Alibaba Group and Meituan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alibaba Group 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.| Alibaba Group vs. PDD Holdings | Alibaba Group vs. MercadoLibre | Alibaba Group vs. JD Inc Adr | Alibaba Group vs. Sea |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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