Correlation Between NetEase and NetEase Inc

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

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

Diversification Opportunities for NetEase and NetEase Inc

0.56

Correlation Coefficient

NetEase  NetEase Inc

Very weak diversification

The 3 months correlation between NetEase and NetEase Inc is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding NetEase and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase 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 NetEase Inc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetEase Inc has no effect on the direction of NetEase i.e., NetEase and NetEase Inc go up and down completely randomly.

Pair Corralation between NetEase and NetEase Inc

Given the investment horizon of 90 days NetEase is expected to generate 4.51 times less return on investment than NetEase Inc. But when comparing it to its historical volatility, NetEase is 3.45 times less risky than NetEase Inc. It trades about 0.05 of its potential returns per unit of risk. NetEase is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,794  in NetEase on December 22, 2024 and sell it today you would earn a total of  227.00  from holding NetEase or generate 12.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

NetEase  vs.  NetEase

NetEase

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, NetEase may actually be approaching a critical reversion point that can send shares even higher in April 2025.

NetEase Inc

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, NetEase Inc reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NetEase and NetEase Inc

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

The idea behind NetEase and NetEase 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.