Correlation Between ZOZO and Meituan ADR
Can any of the company-specific risk be diversified away by investing in both ZOZO 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 ZOZO and Meituan ADR into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ZOZO Inc and Meituan ADR, you can compare the effects of market volatilities on ZOZO 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 ZOZO with a short position of Meituan ADR. Check out your portfolio center. Please also check ongoing floating volatility patterns of ZOZO and Meituan ADR.
Diversification Opportunities for ZOZO and Meituan ADR
0.35 | Correlation Coefficient |
Weak diversification
The 3 months correlation between ZOZO and Meituan is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding ZOZO Inc and Meituan ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meituan ADR and ZOZO 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 ZOZO Inc 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 ZOZO i.e., ZOZO and Meituan ADR go up and down completely randomly.
Pair Corralation between ZOZO and Meituan ADR
Assuming the 90 days horizon ZOZO Inc is expected to generate 1.01 times more return on investment than Meituan ADR. However, ZOZO is 1.01 times more volatile than Meituan ADR. It trades about 0.43 of its potential returns per unit of risk. Meituan ADR is currently generating about 0.1 per unit of risk. If you would invest 2,323 in ZOZO Inc on September 1, 2024 and sell it today you would earn a total of 1,037 from holding ZOZO Inc or generate 44.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 18.25% |
| Values | Daily Returns |
ZOZO Inc vs. Meituan ADR
Performance |
| Timeline |
| ZOZO Inc |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
OK
| Meituan ADR |
ZOZO and Meituan ADR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ZOZO and Meituan ADR
The main advantage of trading using opposite ZOZO and Meituan ADR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ZOZO 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 ZOZO Inc 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.| Meituan ADR vs. PDD Holdings | Meituan ADR vs. JD Inc Adr | Meituan ADR vs. Baozun Inc | Meituan ADR vs. Global E Online |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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