Correlation Between Bt Brands and NetEase

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

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

Diversification Opportunities for Bt Brands and NetEase

-0.13

Correlation Coefficient

Bt Brands  NetEase

Good diversification

The 3 months correlation between BTBD and NetEase is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Bt Brands and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase and Bt Brands 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 Bt Brands 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 Bt Brands i.e., Bt Brands and NetEase go up and down completely randomly.

Pair Corralation between Bt Brands and NetEase

Given the investment horizon of 90 days Bt Brands is expected to generate 7.65 times less return on investment than NetEase. In addition to that, Bt Brands is 1.28 times more volatile than NetEase. It trades about 0.01 of its total potential returns per unit of risk. NetEase is currently generating about 0.12 per unit of volatility. If you would invest  7,639  in NetEase on September 16, 2024 and sell it today you would earn a total of  1,906  from holding NetEase or generate 24.95% return on investment over 90 days.

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

Bt Brands  vs.  NetEase

Bt Brands

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Bt Brands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Bt Brands is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

NetEase

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent technical and fundamental indicators, NetEase unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bt Brands and NetEase

The main advantage of trading using opposite Bt Brands and NetEase positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bt Brands 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 Bt Brands 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.