Correlation Between Valens and NetEase

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

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

Diversification Opportunities for Valens and NetEase

0.47

Correlation Coefficient

Valens  NetEase

Very weak diversification

The 3 months correlation between Valens and NetEase is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Valens and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase and Valens 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 Valens 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 Valens i.e., Valens and NetEase go up and down completely randomly.

Pair Corralation between Valens and NetEase

Considering the 90-day investment horizon Valens is expected to generate 1.35 times more return on investment than NetEase. However, Valens is 1.35 times more volatile than NetEase. It trades about 0.0 of its potential returns per unit of risk. NetEase is currently generating about -0.01 per unit of risk. If you would invest  220.00  in Valens on September 21, 2024 and sell it today you would lose (40.00) from holding Valens or give up 18.18% of portfolio value over 90 days.

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

Valens  vs.  NetEase

Valens

Risk-Adjusted Performance

0 of 100

Very Weak

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

The main advantage of trading using opposite Valens and NetEase positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Valens 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 Valens 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.