Correlation Between Nine Energy and The9

Can any of the company-specific risk be diversified away by investing in both Nine Energy and The9 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 Nine Energy and The9 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nine Energy Service and The9 Ltd ADR, you can compare the effects of market volatilities on Nine Energy and The9 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 Nine Energy with a short position of The9. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nine Energy and The9.

Diversification Opportunities for Nine Energy and The9

0.57

Correlation Coefficient

Nine Energy  The9

Very weak diversification

The 3 months correlation between Nine and The9 is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Nine Energy Service and The9 Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The9 Ltd ADR and Nine Energy 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 Nine Energy Service are associated (or correlated) with The9. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The9 Ltd ADR has no effect on the direction of Nine Energy i.e., Nine Energy and The9 go up and down completely randomly.

Pair Corralation between Nine Energy and The9

Given the investment horizon of 90 days Nine Energy is expected to generate 3.59 times less return on investment than The9. In addition to that, Nine Energy is 1.37 times more volatile than The9 Ltd ADR. It trades about 0.06 of its total potential returns per unit of risk. The9 Ltd ADR is currently generating about 0.29 per unit of volatility. If you would invest  700.00  in The9 Ltd ADR on September 12, 2024 and sell it today you would earn a total of  1,064  from holding The9 Ltd ADR or generate 152.0% return on investment over 90 days.

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

Nine Energy Service  vs.  The9 Ltd ADR

Nine Energy Service

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nine Energy Service are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Nine Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

The9 Ltd ADR

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The9 Ltd ADR are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, The9 showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nine Energy and The9

The main advantage of trading using opposite Nine Energy and The9 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nine Energy position performs unexpectedly, The9 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 The9 will offset losses from the drop in The9's long position.

The idea behind Nine Energy Service and The9 Ltd ADR 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.