Correlation Between NetEase and Alphabet

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

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

Diversification Opportunities for NetEase and Alphabet

-0.55

Correlation Coefficient

NetEase  Alphabet

Excellent diversification

The 3 months correlation between NetEase and Alphabet is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding NetEase and Alphabet Inc Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Class A 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 Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet Class A has no effect on the direction of NetEase i.e., NetEase and Alphabet go up and down completely randomly.

Pair Corralation between NetEase and Alphabet

Assuming the 90 days trading horizon NetEase is expected to generate 0.74 times more return on investment than Alphabet. However, NetEase is 1.35 times less risky than Alphabet. It trades about 0.12 of its potential returns per unit of risk. Alphabet Inc Class A is currently generating about -0.13 per unit of risk. If you would invest  183,383  in NetEase on December 24, 2024 and sell it today you would earn a total of  19,117  from holding NetEase or generate 10.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

NetEase  vs.  Alphabet Inc Class A

NetEase

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, NetEase may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Alphabet Class A

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alphabet Inc Class A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with NetEase and Alphabet

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

The idea behind NetEase and Alphabet Inc Class A 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.