Correlation Between SWK Holdings and NetEase Inc

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

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

Diversification Opportunities for SWK Holdings and NetEase Inc

0.79

Correlation Coefficient

SWK Holdings  NetEase Inc

Poor diversification

The 3 months correlation between SWK and NetEase Inc is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding SWK Holdings and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase Inc and SWK Holdings 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 SWK Holdings are associated (or correlated) with NetEase Inc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetEase Inc has no effect on the direction of SWK Holdings i.e., SWK Holdings and NetEase Inc go up and down completely randomly.

Pair Corralation between SWK Holdings and NetEase Inc

Assuming the 90 days horizon SWK Holdings is expected to generate 14.11 times less return on investment than NetEase Inc. But when comparing it to its historical volatility, SWK Holdings is 24.74 times less risky than NetEase Inc. It trades about 0.18 of its potential returns per unit of risk. NetEase is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,124  in NetEase on April 25, 2025 and sell it today you would earn a total of  770.00  from holding NetEase or generate 36.25% return on investment over 90 days.

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

SWK Holdings  vs.  NetEase

SWK Holdings

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SWK Holdings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical indicators, SWK Holdings is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

NetEase Inc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, NetEase Inc reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SWK Holdings and NetEase Inc

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

The idea behind SWK Holdings 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.