Correlation Between NetEase and GMS

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

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

Diversification Opportunities for NetEase and GMS

0.13

Correlation Coefficient

NetEase  GMS

Average diversification

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

Pair Corralation between NetEase and GMS

Given the investment horizon of 90 days NetEase is expected to generate 1.3 times less return on investment than GMS. In addition to that, NetEase is 1.76 times more volatile than GMS Inc. It trades about 0.08 of its total potential returns per unit of risk. GMS Inc is currently generating about 0.18 per unit of volatility. If you would invest  8,376  in GMS Inc on September 2, 2024 and sell it today you would earn a total of  1,659  from holding GMS Inc or generate 19.81% return on investment over 90 days.

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

NetEase  vs.  GMS Inc

NetEase

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 6 (%) 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.

GMS Inc

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GMS Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak primary indicators, GMS unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NetEase and GMS

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

The idea behind NetEase and GMS Inc 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..