Correlation Between Meituan ADR and Boohoo PLC

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

By analyzing existing cross correlation between Meituan ADR and BoohooCom PLC ADR, you can compare the effects of market volatilities on Meituan ADR and Boohoo PLC 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 ADR with a short position of Boohoo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Meituan ADR and Boohoo PLC.

Diversification Opportunities for Meituan ADR and Boohoo PLC

-0.78

Correlation Coefficient

Meituan ADR  Boohoo PLC

Pay attention - limited upside

The 3 months correlation between Meituan and Boohoo is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Meituan ADR and BoohooCom PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BoohooCom PLC ADR and Meituan ADR 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 ADR are associated (or correlated) with Boohoo PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BoohooCom PLC ADR has no effect on the direction of Meituan ADR i.e., Meituan ADR and Boohoo PLC go up and down completely randomly.

Pair Corralation between Meituan ADR and Boohoo PLC

Assuming the 90 days horizon Meituan ADR is expected to generate 1.09 times more return on investment than Boohoo PLC. However, Meituan ADR is 1.09 times more volatile than BoohooCom PLC ADR. It trades about 0.0 of its potential returns per unit of risk. BoohooCom PLC ADR is currently generating about -0.03 per unit of risk. If you would invest  4,245  in Meituan ADR on February 5, 2024 and sell it today you would lose (1,145) from holding Meituan ADR or give up 26.97% of portfolio value over 90 days.

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

Meituan ADR  vs.  BoohooCom PLC ADR

Meituan ADR

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Meituan ADR are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, Meituan ADR showed solid returns over the last few months and may actually be approaching a breakup point.

BoohooCom PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BoohooCom PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Meituan ADR and Boohoo PLC

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

The idea behind Meituan ADR and BoohooCom PLC 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.

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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.