Correlation Between Marine Products and NetEase

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

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

Diversification Opportunities for Marine Products and NetEase

-0.2

Correlation Coefficient

Marine Products  NetEase

Good diversification

The 3 months correlation between Marine and NetEase is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Marine Products and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase and Marine Products 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 Marine Products 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 Marine Products i.e., Marine Products and NetEase go up and down completely randomly.

Pair Corralation between Marine Products and NetEase

Considering the 90-day investment horizon Marine Products is expected to under-perform the NetEase. But the stock apears to be less risky and, when comparing its historical volatility, Marine Products is 1.06 times less risky than NetEase. The stock trades about -0.03 of its potential returns per unit of risk. The NetEase is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  8,925  in NetEase on December 28, 2024 and sell it today you would earn a total of  1,147  from holding NetEase or generate 12.85% return on investment over 90 days.

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

Marine Products  vs.  NetEase

Marine Products

Risk-Adjusted Performance

Very Weak

Over the last 90 days Marine Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Marine Products is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

NetEase

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 7 (%) 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 Marine Products and NetEase

The main advantage of trading using opposite Marine Products and NetEase positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Marine Products 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 Marine Products 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.