Correlation Between NEXON Co and NetEase Inc

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

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

Diversification Opportunities for NEXON Co and NetEase Inc

-0.29

Correlation Coefficient

NEXON Co  NetEase Inc

Very good diversification

The 3 months correlation between NEXON and NetEase Inc is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding NEXON Co and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase Inc and NEXON Co 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 NEXON Co are associated (or correlated) with NetEase Inc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetEase Inc has no effect on the direction of NEXON Co i.e., NEXON Co and NetEase Inc go up and down completely randomly.

Pair Corralation between NEXON Co and NetEase Inc

Assuming the 90 days horizon NEXON Co is expected to under-perform the NetEase Inc. But the pink sheet apears to be less risky and, when comparing its historical volatility, NEXON Co is 2.15 times less risky than NetEase Inc. The pink sheet trades about -0.05 of its potential returns per unit of risk. The NetEase is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,794  in NetEase on December 21, 2024 and sell it today you would earn a total of  227.00  from holding NetEase or generate 12.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

NEXON Co  vs.  NetEase

NEXON Co

Risk-Adjusted Performance

Very Weak

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

NetEase Inc

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, NetEase Inc reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NEXON Co and NetEase Inc

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

The idea behind NEXON Co 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 Stocks Directory module to find actively traded stocks across global markets.