Correlation Between NetEase and Valens

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

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

Diversification Opportunities for NetEase and Valens

0.64

Correlation Coefficient

NetEase  Valens

Poor diversification

The 3 months correlation between NetEase and Valens is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding NetEase and Valens in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valens 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 Valens. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valens has no effect on the direction of NetEase i.e., NetEase and Valens go up and down completely randomly.

Pair Corralation between NetEase and Valens

Given the investment horizon of 90 days NetEase is expected to generate 0.31 times more return on investment than Valens. However, NetEase is 3.22 times less risky than Valens. It trades about 0.29 of its potential returns per unit of risk. Valens is currently generating about 0.07 per unit of risk. If you would invest  9,803  in NetEase on February 14, 2025 and sell it today you would earn a total of  908.00  from holding NetEase or generate 9.26% return on investment over 90 days.

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

NetEase  vs.  Valens

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 stable technical and fundamental indicators, NetEase is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Valens

Risk-Adjusted Performance

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 very healthy essential indicators, Valens is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with NetEase and Valens

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

The idea behind NetEase and Valens 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.