Correlation Between Coupang and Meituan

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

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

Diversification Opportunities for Coupang and Meituan

0.22

Correlation Coefficient

Coupang  Meituan

Modest diversification

The 3 months correlation between Coupang and Meituan is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Coupang and Meituan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meituan and Coupang 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 Coupang 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 Coupang i.e., Coupang and Meituan go up and down completely randomly.

Pair Corralation between Coupang and Meituan

Assuming the 90 days horizon Coupang is expected to under-perform the Meituan. But the stock apears to be less risky and, when comparing its historical volatility, Coupang is 2.64 times less risky than Meituan. The stock trades about -0.13 of its potential returns per unit of risk. The Meituan is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,975  in Meituan on September 26, 2024 and sell it today you would lose (59.00) from holding Meituan or give up 2.99% of portfolio value over 90 days.

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

Coupang  vs.  Meituan

Coupang

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Coupang has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Coupang is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Meituan

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Meituan are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Meituan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Coupang and Meituan

The main advantage of trading using opposite Coupang and Meituan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coupang 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 Coupang 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.

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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .