Correlation Between NetEase and Freeport

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

By analyzing existing cross correlation between NetEase and Freeport McMoRan 54 percent, you can compare the effects of market volatilities on NetEase and Freeport 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 Freeport. Check out your portfolio center. Please also check ongoing floating volatility patterns of NetEase and Freeport.

Diversification Opportunities for NetEase and Freeport

0.17

Correlation Coefficient

NetEase  Freeport

Average diversification

The 3 months correlation between NetEase and Freeport is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding NetEase and Freeport McMoRan 54 percent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freeport McMoRan 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 Freeport. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freeport McMoRan has no effect on the direction of NetEase i.e., NetEase and Freeport go up and down completely randomly.

Pair Corralation between NetEase and Freeport

Given the investment horizon of 90 days NetEase is expected to generate 3.18 times more return on investment than Freeport. However, NetEase is 3.18 times more volatile than Freeport McMoRan 54 percent. It trades about 0.03 of its potential returns per unit of risk. Freeport McMoRan 54 percent is currently generating about -0.01 per unit of risk. If you would invest  7,611  in NetEase on September 28, 2024 and sell it today you would earn a total of  1,620  from holding NetEase or generate 21.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.59%
Values	Daily Returns

NetEase  vs.  Freeport McMoRan 54 percent

NetEase

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NetEase has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, NetEase is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Freeport McMoRan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Freeport McMoRan 54 percent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for Freeport McMoRan 54 percent investors.

Pair Trading with NetEase and Freeport

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

The idea behind NetEase and Freeport McMoRan 54 percent 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.