Correlation Between NetEase and Gravity

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

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

Diversification Opportunities for NetEase and Gravity

0.28

Correlation Coefficient

NetEase  Gravity

Modest diversification

The 3 months correlation between NetEase and Gravity is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding NetEase and Gravity Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gravity and NetEase 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 NetEase are associated (or correlated) with Gravity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gravity has no effect on the direction of NetEase i.e., NetEase and Gravity go up and down completely randomly.

Pair Corralation between NetEase and Gravity

Given the investment horizon of 90 days NetEase is expected to generate 1.34 times more return on investment than Gravity. However, NetEase is 1.34 times more volatile than Gravity Co. It trades about 0.05 of its potential returns per unit of risk. Gravity Co is currently generating about 0.02 per unit of risk. If you would invest  9,425  in NetEase on January 12, 2025 and sell it today you would earn a total of  510.00  from holding NetEase or generate 5.41% return on investment over 90 days.

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

NetEase  vs.  Gravity Co

NetEase

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 3 (%) 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 May 2025.

Gravity

Risk-Adjusted Performance

Weak

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

Pair Trading with NetEase and Gravity

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

The idea behind NetEase and Gravity Co 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.