Correlation Between Gravity and NetEase

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

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

Diversification Opportunities for Gravity and NetEase

0.74

Correlation Coefficient

Gravity  NetEase

Poor diversification

The 3 months correlation between Gravity and NetEase is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Gravity Co and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase and Gravity 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 Gravity 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 Gravity i.e., Gravity and NetEase go up and down completely randomly.

Pair Corralation between Gravity and NetEase

Given the investment horizon of 90 days Gravity Co is expected to generate 1.03 times more return on investment than NetEase. However, Gravity is 1.03 times more volatile than NetEase. It trades about -0.02 of its potential returns per unit of risk. NetEase is currently generating about -0.03 per unit of risk. If you would invest  7,994  in Gravity Co on June 9, 2024 and sell it today you would lose (1,823) from holding Gravity Co or give up 22.8% of portfolio value over 90 days.

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

Gravity Co  vs.  NetEase

Gravity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gravity Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in October 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

NetEase

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NetEase has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in October 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Gravity and NetEase

The main advantage of trading using opposite Gravity and NetEase positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gravity 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 Gravity 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.

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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.