Correlation Between Mesabi Trust and Meituan ADR

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

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

Diversification Opportunities for Mesabi Trust and Meituan ADR

0.8

Correlation Coefficient

Mesabi Trust  Meituan ADR

Very poor diversification

The 3 months correlation between Mesabi and Meituan is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Mesabi Trust and Meituan ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meituan ADR and Mesabi Trust 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 Mesabi Trust are associated (or correlated) with Meituan ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meituan ADR has no effect on the direction of Mesabi Trust i.e., Mesabi Trust and Meituan ADR go up and down completely randomly.

Pair Corralation between Mesabi Trust and Meituan ADR

Considering the 90-day investment horizon Mesabi Trust is expected to generate 0.74 times more return on investment than Meituan ADR. However, Mesabi Trust is 1.35 times less risky than Meituan ADR. It trades about 0.24 of its potential returns per unit of risk. Meituan ADR is currently generating about 0.15 per unit of risk. If you would invest  1,670  in Mesabi Trust on August 30, 2024 and sell it today you would earn a total of  1,083  from holding Mesabi Trust or generate 64.85% return on investment over 90 days.

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

Mesabi Trust  vs.  Meituan ADR

Mesabi Trust

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mesabi Trust are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Mesabi Trust sustained solid returns over the last few months and may actually be approaching a breakup point.

Meituan ADR

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Meituan ADR are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile technical and fundamental indicators, Meituan ADR showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mesabi Trust and Meituan ADR

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

The idea behind Mesabi Trust and Meituan 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 Transaction History module to view history of all your transactions and understand their impact on performance.