Correlation Between Visa and NetEase

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

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

Diversification Opportunities for Visa and NetEase

0.06

Correlation Coefficient

Visa  NetEase

Significant diversification

The 3 months correlation between Visa and NetEase is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase and Visa 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 Visa Class A 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 Visa i.e., Visa and NetEase go up and down completely randomly.

Pair Corralation between Visa and NetEase

Taking into account the 90-day investment horizon Visa is expected to generate 1.29 times less return on investment than NetEase. But when comparing it to its historical volatility, Visa Class A is 4.07 times less risky than NetEase. It trades about 0.08 of its potential returns per unit of risk. NetEase is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,704  in NetEase on October 8, 2024 and sell it today you would earn a total of  143.00  from holding NetEase or generate 8.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Visa Class A  vs.  NetEase

Visa Class A

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

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. Despite nearly stable basic indicators, NetEase is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Visa and NetEase

The main advantage of trading using opposite Visa and NetEase positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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 Visa Class A 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.

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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.