Correlation Between Youdao and GMO Internet

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

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

Diversification Opportunities for Youdao and GMO Internet

0.43

Correlation Coefficient

Youdao  GMO Internet

Very weak diversification

The 3 months correlation between Youdao and GMO is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Youdao Inc and GMO Internet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMO Internet and Youdao 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 Youdao Inc are associated (or correlated) with GMO Internet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMO Internet has no effect on the direction of Youdao i.e., Youdao and GMO Internet go up and down completely randomly.

Pair Corralation between Youdao and GMO Internet

Considering the 90-day investment horizon Youdao Inc is expected to generate 3.58 times more return on investment than GMO Internet. However, Youdao is 3.58 times more volatile than GMO Internet. It trades about 0.07 of its potential returns per unit of risk. GMO Internet is currently generating about 0.18 per unit of risk. If you would invest  707.00  in Youdao Inc on December 19, 2024 and sell it today you would earn a total of  136.00  from holding Youdao Inc or generate 19.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Youdao Inc  vs.  GMO Internet

Youdao Inc

Risk-Adjusted Performance

Modest

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

GMO Internet

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GMO Internet are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, GMO Internet reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Youdao and GMO Internet

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

The idea behind Youdao Inc and GMO Internet 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.