Correlation Between NetEase and Flutter Entertainment

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

By analyzing existing cross correlation between NetEase and Flutter Entertainment plc, you can compare the effects of market volatilities on NetEase and Flutter Entertainment 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 Flutter Entertainment. Check out your portfolio center. Please also check ongoing floating volatility patterns of NetEase and Flutter Entertainment.

Diversification Opportunities for NetEase and Flutter Entertainment

0.64

Correlation Coefficient

NetEase  Flutter Entertainment

Poor diversification

The 3 months correlation between NetEase and Flutter is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding NetEase and Flutter Entertainment plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flutter Entertainment plc 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 Flutter Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flutter Entertainment plc has no effect on the direction of NetEase i.e., NetEase and Flutter Entertainment go up and down completely randomly.

Pair Corralation between NetEase and Flutter Entertainment

Given the investment horizon of 90 days NetEase is expected to generate 2.34 times more return on investment than Flutter Entertainment. However, NetEase is 2.34 times more volatile than Flutter Entertainment plc. It trades about 0.17 of its potential returns per unit of risk. Flutter Entertainment plc is currently generating about 0.04 per unit of risk. If you would invest  9,237  in NetEase on October 23, 2024 and sell it today you would earn a total of  739.00  from holding NetEase or generate 8.0% return on investment over 90 days.

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

NetEase  vs.  Flutter Entertainment plc

NetEase

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 11 (%) 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.

Flutter Entertainment plc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Flutter Entertainment plc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Flutter Entertainment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NetEase and Flutter Entertainment

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

The idea behind NetEase and Flutter Entertainment plc 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.