Correlation Between NetEase and GD Culture

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

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

Diversification Opportunities for NetEase and GD Culture

-0.83

Correlation Coefficient

NetEase  GD Culture

Pay attention - limited upside

The 3 months correlation between NetEase and GDC is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding NetEase and GD Culture Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GD Culture 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 GD Culture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GD Culture Group has no effect on the direction of NetEase i.e., NetEase and GD Culture go up and down completely randomly.

Pair Corralation between NetEase and GD Culture

Given the investment horizon of 90 days NetEase is expected to under-perform the GD Culture. But the stock apears to be less risky and, when comparing its historical volatility, NetEase is 4.4 times less risky than GD Culture. The stock trades about -0.04 of its potential returns per unit of risk. The GD Culture Group is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  145.00  in GD Culture Group on November 28, 2024 and sell it today you would earn a total of  38.00  from holding GD Culture Group or generate 26.21% return on investment over 90 days.

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

NetEase  vs.  GD Culture Group

NetEase

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 7 (%) 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.

GD Culture Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days GD Culture Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with NetEase and GD Culture

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

The idea behind NetEase and GD Culture 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.

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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.