Correlation Between NetEase and EMCOR
Can any of the company-specific risk be diversified away by investing in both NetEase and EMCOR 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 EMCOR into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NetEase and EMCOR Group, you can compare the effects of market volatilities on NetEase and EMCOR 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 EMCOR. Check out your portfolio center. Please also check ongoing floating volatility patterns of NetEase and EMCOR.
Diversification Opportunities for NetEase and EMCOR
Good diversification
The 3 months correlation between NetEase and EMCOR is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding NetEase and EMCOR Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMCOR Group 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 EMCOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMCOR Group has no effect on the direction of NetEase i.e., NetEase and EMCOR go up and down completely randomly.
Pair Corralation between NetEase and EMCOR
Given the investment horizon of 90 days NetEase is expected to generate 3.22 times less return on investment than EMCOR. In addition to that, NetEase is 1.33 times more volatile than EMCOR Group. It trades about 0.03 of its total potential returns per unit of risk. EMCOR Group is currently generating about 0.13 per unit of volatility. If you would invest 14,732 in EMCOR Group on September 23, 2024 and sell it today you would earn a total of 31,850 from holding EMCOR Group or generate 216.2% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
NetEase vs. EMCOR Group
Performance |
Timeline |
NetEase |
EMCOR Group |
NetEase and EMCOR Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with NetEase and EMCOR
The main advantage of trading using opposite NetEase and EMCOR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NetEase position performs unexpectedly, EMCOR 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 EMCOR will offset losses from the drop in EMCOR's long position.The idea behind NetEase and EMCOR Group 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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