Correlation Between NEXON and NetEase
Can any of the company-specific risk be diversified away by investing in both NEXON 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 NEXON and NetEase into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NEXON Co and NetEase, you can compare the effects of market volatilities on NEXON 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 NEXON with a short position of NetEase. Check out your portfolio center. Please also check ongoing floating volatility patterns of NEXON and NetEase.
Diversification Opportunities for NEXON and NetEase
Very poor diversification
The 3 months correlation between NEXON and NetEase is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding NEXON Co and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase and NEXON 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 NEXON Co 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 NEXON i.e., NEXON and NetEase go up and down completely randomly.
Pair Corralation between NEXON and NetEase
Assuming the 90 days horizon NEXON is expected to generate 2.18 times less return on investment than NetEase. But when comparing it to its historical volatility, NEXON Co is 1.95 times less risky than NetEase. It trades about 0.09 of its potential returns per unit of risk. NetEase is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 2,072 in NetEase on April 29, 2025 and sell it today you would earn a total of 738.00 from holding NetEase or generate 35.62% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
NEXON Co vs. NetEase
Performance |
Timeline |
NEXON |
NetEase |
NEXON and NetEase Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with NEXON and NetEase
The main advantage of trading using opposite NEXON and NetEase positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NEXON 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 NEXON Co 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.NetEase vs. Nintendo Co ADR | NetEase vs. Take Two Interactive Software | NetEase vs. Roblox Corp | NetEase vs. Nippon Telegraph Telephone |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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