Correlation Between NetEase and Ubisoft Entertainment

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

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

Diversification Opportunities for NetEase and Ubisoft Entertainment

-0.27

Correlation Coefficient

NetEase  Ubisoft Entertainment

Very good diversification

The 3 months correlation between NetEase and Ubisoft is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding NetEase and Ubisoft Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ubisoft Entertainment 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 Ubisoft Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ubisoft Entertainment has no effect on the direction of NetEase i.e., NetEase and Ubisoft Entertainment go up and down completely randomly.

Pair Corralation between NetEase and Ubisoft Entertainment

Given the investment horizon of 90 days NetEase is expected to generate 0.54 times more return on investment than Ubisoft Entertainment. However, NetEase is 1.84 times less risky than Ubisoft Entertainment. It trades about 0.1 of its potential returns per unit of risk. Ubisoft Entertainment is currently generating about 0.03 per unit of risk. If you would invest  8,925  in NetEase on December 29, 2024 and sell it today you would earn a total of  1,147  from holding NetEase or generate 12.85% return on investment over 90 days.

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

NetEase  vs.  Ubisoft Entertainment

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 uncertain technical and fundamental indicators, NetEase unveiled solid returns over the last few months and may actually be approaching a breakup point.

Ubisoft Entertainment

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ubisoft Entertainment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Ubisoft Entertainment may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with NetEase and Ubisoft Entertainment

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

The idea behind NetEase and Ubisoft Entertainment 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.