Correlation Between SohuCom and NetEase
Can any of the company-specific risk be diversified away by investing in both SohuCom 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 SohuCom and NetEase into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SohuCom and NetEase, you can compare the effects of market volatilities on SohuCom 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 SohuCom with a short position of NetEase. Check out your portfolio center. Please also check ongoing floating volatility patterns of SohuCom and NetEase.
Diversification Opportunities for SohuCom and NetEase
Weak diversification
The 3 months correlation between SohuCom and NetEase is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding SohuCom and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase and SohuCom 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 SohuCom 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 SohuCom i.e., SohuCom and NetEase go up and down completely randomly.
Pair Corralation between SohuCom and NetEase
Given the investment horizon of 90 days SohuCom is expected to under-perform the NetEase. But the stock apears to be less risky and, when comparing its historical volatility, SohuCom is 1.08 times less risky than NetEase. The stock trades about -0.01 of its potential returns per unit of risk. The NetEase is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 8,500 in NetEase on August 27, 2024 and sell it today you would earn a total of 145.00 from holding NetEase or generate 1.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
SohuCom vs. NetEase
Performance |
| Timeline |
| SohuCom |
| NetEase |
SohuCom and NetEase Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SohuCom and NetEase
The main advantage of trading using opposite SohuCom and NetEase positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SohuCom 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.| SohuCom vs. Snail, Class A | SohuCom vs. Playstudios | SohuCom vs. Playtika Holding Corp | SohuCom vs. Doubledown Interactive Co |
| NetEase vs. Playstudios | NetEase vs. Talkspace | NetEase vs. Katapult Holdings Equity | NetEase vs. Aquagold International |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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