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

0.18

Correlation Coefficient

Alibaba Group  Meituan

Average diversification

The 3 months correlation between Alibaba and Meituan is 0.18. 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 is expected to generate 1.69 times less return on investment than Meituan. But when comparing it to its historical volatility, Alibaba Group Holding is 1.94 times less risky than Meituan. It trades about 0.28 of its potential returns per unit of risk. Meituan is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,263  in Meituan on February 6, 2024 and sell it today you would earn a total of  285.00  from holding Meituan or generate 22.57% return on investment over 90 days.

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

Alibaba Group Holding  vs.  Meituan

Alibaba Group Holding

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Group Holding are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Alibaba Group is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Meituan

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Meituan are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, Meituan reported solid returns over the last few months and may actually be approaching a breakup point.

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.

The idea behind Alibaba Group Holding 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.