Correlation Between NetEase and GMxico Transportes

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

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

Diversification Opportunities for NetEase and GMxico Transportes

0.32

Correlation Coefficient

NetEase  GMxico Transportes

Weak diversification

The 3 months correlation between NetEase and GMxico is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding NetEase and GMxico Transportes SAB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMxico Transportes SAB 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 GMxico Transportes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMxico Transportes SAB has no effect on the direction of NetEase i.e., NetEase and GMxico Transportes go up and down completely randomly.

Pair Corralation between NetEase and GMxico Transportes

Assuming the 90 days trading horizon NetEase is expected to generate 0.27 times more return on investment than GMxico Transportes. However, NetEase is 3.76 times less risky than GMxico Transportes. It trades about 0.22 of its potential returns per unit of risk. GMxico Transportes SAB is currently generating about 0.0 per unit of risk. If you would invest  185,600  in NetEase on October 23, 2024 and sell it today you would earn a total of  3,500  from holding NetEase or generate 1.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

NetEase  vs.  GMxico Transportes SAB

NetEase

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, NetEase displayed solid returns over the last few months and may actually be approaching a breakup point.

GMxico Transportes SAB

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in GMxico Transportes SAB are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, GMxico Transportes is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NetEase and GMxico Transportes

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

The idea behind NetEase and GMxico Transportes SAB 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 Global Correlations module to find global opportunities by holding instruments from different markets.