Correlation Between NetEase and Tokyo Electron

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

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

Diversification Opportunities for NetEase and Tokyo Electron

0.15

Correlation Coefficient

NetEase  Tokyo Electron

Average diversification

The 3 months correlation between NetEase and Tokyo is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding NetEase and Tokyo Electron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyo Electron 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 Tokyo Electron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyo Electron has no effect on the direction of NetEase i.e., NetEase and Tokyo Electron go up and down completely randomly.

Pair Corralation between NetEase and Tokyo Electron

Given the investment horizon of 90 days NetEase is expected to generate 0.65 times more return on investment than Tokyo Electron. However, NetEase is 1.54 times less risky than Tokyo Electron. It trades about 0.07 of its potential returns per unit of risk. Tokyo Electron is currently generating about 0.0 per unit of risk. If you would invest  9,237  in NetEase on December 21, 2024 and sell it today you would earn a total of  760.00  from holding NetEase or generate 8.23% return on investment over 90 days.

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

NetEase  vs.  Tokyo Electron

NetEase

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 5 (%) 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.

Tokyo Electron

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tokyo Electron has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Tokyo Electron is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with NetEase and Tokyo Electron

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

The idea behind NetEase and Tokyo Electron 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.