Correlation Between China Aircraft and NetEase

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

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

Diversification Opportunities for China Aircraft and NetEase

0.27

Correlation Coefficient

China Aircraft  NetEase

Modest diversification

The 3 months correlation between China and NetEase is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding China Aircraft Leasing and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase and China Aircraft 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 China Aircraft Leasing are associated (or correlated) with NetEase. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetEase has no effect on the direction of China Aircraft i.e., China Aircraft and NetEase go up and down completely randomly.

Pair Corralation between China Aircraft and NetEase

Assuming the 90 days horizon China Aircraft Leasing is expected to under-perform the NetEase. But the pink sheet apears to be less risky and, when comparing its historical volatility, China Aircraft Leasing is 3.67 times less risky than NetEase. The pink sheet trades about -0.13 of its potential returns per unit of risk. The NetEase is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  8,009  in NetEase on September 21, 2024 and sell it today you would earn a total of  1,172  from holding NetEase or generate 14.63% return on investment over 90 days.

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

China Aircraft Leasing  vs.  NetEase

China Aircraft Leasing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Aircraft Leasing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

NetEase

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, NetEase unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Aircraft and NetEase

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

The idea behind China Aircraft Leasing and NetEase 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 Global Correlations module to find global opportunities by holding instruments from different markets.