Correlation Between Summit Materials and NetEase

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

By analyzing existing cross correlation between Summit Materials and NetEase, you can compare the effects of market volatilities on Summit Materials and NetEase 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 Summit Materials with a short position of NetEase. Check out your portfolio center. Please also check ongoing floating volatility patterns of Summit Materials and NetEase.

Diversification Opportunities for Summit Materials and NetEase

0.54

Correlation Coefficient

Summit Materials  NetEase

Very weak diversification

The 3 months correlation between Summit and NetEase is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase and Summit Materials 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 Summit Materials are associated (or correlated) with NetEase. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetEase has no effect on the direction of Summit Materials i.e., Summit Materials and NetEase go up and down completely randomly.

Pair Corralation between Summit Materials and NetEase

Considering the 90-day investment horizon Summit Materials is expected to generate 1.37 times less return on investment than NetEase. But when comparing it to its historical volatility, Summit Materials is 5.8 times less risky than NetEase. It trades about 0.28 of its potential returns per unit of risk. NetEase is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9,231  in NetEase on December 25, 2024 and sell it today you would earn a total of  743.00  from holding NetEase or generate 8.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	51.67%
Values	Daily Returns

Summit Materials  vs.  NetEase

Summit Materials

Risk-Adjusted Performance

Solid

Over the last 90 days Summit Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very unfluctuating basic indicators, Summit Materials may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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.

Pair Trading with Summit Materials and NetEase

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

The idea behind Summit Materials and NetEase 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.