Correlation Between NetEase and Country Garden

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

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

Diversification Opportunities for NetEase and Country Garden

0.13

Correlation Coefficient

NetEase  Country Garden

Average diversification

The 3 months correlation between NetEase and Country is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding NetEase and Country Garden Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Country Garden Holdings and NetEase 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 NetEase are associated (or correlated) with Country Garden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Country Garden Holdings has no effect on the direction of NetEase i.e., NetEase and Country Garden go up and down completely randomly.

Pair Corralation between NetEase and Country Garden

Given the investment horizon of 90 days NetEase is expected to generate 3.62 times more return on investment than Country Garden. However, NetEase is 3.62 times more volatile than Country Garden Holdings. It trades about 0.14 of its potential returns per unit of risk. Country Garden Holdings is currently generating about 0.13 per unit of risk. If you would invest  8,067  in NetEase on October 26, 2024 and sell it today you would earn a total of  1,878  from holding NetEase or generate 23.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.92%
Values	Daily Returns

NetEase  vs.  Country Garden Holdings

NetEase

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 10 (%) 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.

Country Garden Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Country Garden Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Country Garden may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with NetEase and Country Garden

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

The idea behind NetEase and Country Garden Holdings 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.