Correlation Between BAXALTA and NetEase

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

By analyzing existing cross correlation between BAXALTA INC 4 and NetEase, you can compare the effects of market volatilities on BAXALTA 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 BAXALTA with a short position of NetEase. Check out your portfolio center. Please also check ongoing floating volatility patterns of BAXALTA and NetEase.

Diversification Opportunities for BAXALTA and NetEase

-0.05

Correlation Coefficient

BAXALTA  NetEase

Good diversification

The 3 months correlation between BAXALTA and NetEase is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding BAXALTA INC 4 and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase and BAXALTA 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 BAXALTA INC 4 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 BAXALTA i.e., BAXALTA and NetEase go up and down completely randomly.

Pair Corralation between BAXALTA and NetEase

Assuming the 90 days trading horizon BAXALTA is expected to generate 314.67 times less return on investment than NetEase. But when comparing it to its historical volatility, BAXALTA INC 4 is 31.84 times less risky than NetEase. It trades about 0.01 of its potential returns per unit of risk. NetEase is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  7,965  in NetEase on September 23, 2024 and sell it today you would earn a total of  1,244  from holding NetEase or generate 15.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.67%
Values	Daily Returns

BAXALTA INC 4  vs.  NetEase

BAXALTA INC 4

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BAXALTA INC 4 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, BAXALTA is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

NetEase

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, NetEase unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BAXALTA and NetEase

The main advantage of trading using opposite BAXALTA and NetEase positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BAXALTA 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 BAXALTA INC 4 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.