Correlation Between Choice Hotels and Meituan

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

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

Diversification Opportunities for Choice Hotels and Meituan

0.42

Correlation Coefficient

Choice Hotels  Meituan

Very weak diversification

The 3 months correlation between Choice and Meituan is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Choice Hotels International and Meituan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meituan and Choice Hotels 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 Choice Hotels International 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 Choice Hotels i.e., Choice Hotels and Meituan go up and down completely randomly.

Pair Corralation between Choice Hotels and Meituan

Assuming the 90 days horizon Choice Hotels is expected to generate 2.58 times less return on investment than Meituan. But when comparing it to its historical volatility, Choice Hotels International is 2.19 times less risky than Meituan. It trades about 0.04 of its potential returns per unit of risk. Meituan is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,470  in Meituan on September 12, 2024 and sell it today you would earn a total of  625.00  from holding Meituan or generate 42.52% return on investment over 90 days.

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

Choice Hotels International  vs.  Meituan

Choice Hotels Intern

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Choice Hotels International are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Choice Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Meituan

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Meituan are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Meituan reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Choice Hotels and Meituan

The main advantage of trading using opposite Choice Hotels and Meituan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Choice Hotels 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 Choice Hotels International 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.