Correlation Between GMO Internet and Youdao

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

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

Diversification Opportunities for GMO Internet and Youdao

0.38

Correlation Coefficient

GMO Internet  Youdao

Weak diversification

The 3 months correlation between GMO and Youdao is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding GMO Internet and Youdao Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Youdao Inc and GMO Internet 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 GMO Internet are associated (or correlated) with Youdao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Youdao Inc has no effect on the direction of GMO Internet i.e., GMO Internet and Youdao go up and down completely randomly.

Pair Corralation between GMO Internet and Youdao

Assuming the 90 days horizon GMO Internet is expected to under-perform the Youdao. But the pink sheet apears to be less risky and, when comparing its historical volatility, GMO Internet is 2.13 times less risky than Youdao. The pink sheet trades about -0.01 of its potential returns per unit of risk. The Youdao Inc is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  415.00  in Youdao Inc on October 25, 2024 and sell it today you would earn a total of  272.00  from holding Youdao Inc or generate 65.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	93.63%
Values	Daily Returns

GMO Internet  vs.  Youdao Inc

GMO Internet

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GMO Internet has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, GMO Internet is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Youdao Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Youdao Inc are ranked lower than 12 (%) 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.

Pair Trading with GMO Internet and Youdao

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

The idea behind GMO Internet and Youdao Inc 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.