Correlation Between Amazon and Meituan

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

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

Diversification Opportunities for Amazon and Meituan

-0.28

Correlation Coefficient

Amazon  Meituan

Very good diversification

The 3 months correlation between Amazon and Meituan is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Meituan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meituan and Amazon 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 Amazon Inc 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 Amazon i.e., Amazon and Meituan go up and down completely randomly.

Pair Corralation between Amazon and Meituan

Assuming the 90 days horizon Amazon Inc is expected to generate 0.32 times more return on investment than Meituan. However, Amazon Inc is 3.1 times less risky than Meituan. It trades about 0.36 of its potential returns per unit of risk. Meituan is currently generating about -0.01 per unit of risk. If you would invest  19,154  in Amazon Inc on September 25, 2024 and sell it today you would earn a total of  2,331  from holding Amazon Inc or generate 12.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Amazon Inc  vs.  Meituan

Amazon Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Amazon reported solid returns over the last few months and may actually be approaching a breakup point.

Meituan

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Meituan are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Meituan reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and Meituan

The main advantage of trading using opposite Amazon and Meituan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon 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 Amazon Inc 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.