Correlation Between NetEase and Nintendo
Can any of the company-specific risk be diversified away by investing in both NetEase and Nintendo 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 Nintendo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NetEase and Nintendo Co ADR, you can compare the effects of market volatilities on NetEase and Nintendo 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 Nintendo. Check out your portfolio center. Please also check ongoing floating volatility patterns of NetEase and Nintendo.
Diversification Opportunities for NetEase and Nintendo
Very poor diversification
The 3 months correlation between NetEase and Nintendo is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding NetEase and Nintendo Co ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nintendo Co ADR 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 Nintendo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nintendo Co ADR has no effect on the direction of NetEase i.e., NetEase and Nintendo go up and down completely randomly.
Pair Corralation between NetEase and Nintendo
Given the investment horizon of 90 days NetEase is expected to generate 1.6 times more return on investment than Nintendo. However, NetEase is 1.6 times more volatile than Nintendo Co ADR. It trades about 0.12 of its potential returns per unit of risk. Nintendo Co ADR is currently generating about 0.14 per unit of risk. If you would invest 7,718 in NetEase on November 2, 2024 and sell it today you would earn a total of 2,770 from holding NetEase or generate 35.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
NetEase vs. Nintendo Co ADR
Performance |
| Timeline |
| NetEase |
| Nintendo Co ADR |
NetEase and Nintendo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NetEase and Nintendo
The main advantage of trading using opposite NetEase and Nintendo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NetEase position performs unexpectedly, Nintendo 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 Nintendo will offset losses from the drop in Nintendo's long position.| NetEase vs. Roblox Corp | NetEase vs. Skillz Platform | NetEase vs. Take Two Interactive Software | NetEase vs. Nintendo Co ADR |
| Nintendo vs. Square Enix Holdings | Nintendo vs. Capcom Co Ltd | Nintendo vs. Electronic Arts | Nintendo vs. Roblox Corp |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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