Correlation Between Gravity and SohuCom

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

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

Diversification Opportunities for Gravity and SohuCom

0.08

Correlation Coefficient

Gravity  SohuCom

Significant diversification

The 3 months correlation between Gravity and SohuCom is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Gravity Co and SohuCom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SohuCom and Gravity 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 Gravity Co are associated (or correlated) with SohuCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SohuCom has no effect on the direction of Gravity i.e., Gravity and SohuCom go up and down completely randomly.

Pair Corralation between Gravity and SohuCom

Given the investment horizon of 90 days Gravity Co is expected to under-perform the SohuCom. But the stock apears to be less risky and, when comparing its historical volatility, Gravity Co is 1.71 times less risky than SohuCom. The stock trades about -0.17 of its potential returns per unit of risk. The SohuCom is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,332  in SohuCom on December 2, 2024 and sell it today you would lose (39.00) from holding SohuCom or give up 2.93% of portfolio value over 90 days.

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

Gravity Co  vs.  SohuCom

Gravity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gravity Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

SohuCom

Risk-Adjusted Performance

Very Weak

Over the last 90 days SohuCom has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical indicators, SohuCom is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Gravity and SohuCom

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

The idea behind Gravity Co and SohuCom 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.