Correlation Between Interactive Brokers and NetEase

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

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

Diversification Opportunities for Interactive Brokers and NetEase

0.23

Correlation Coefficient

Interactive Brokers  NetEase

Modest diversification

The 3 months correlation between Interactive and NetEase is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Interactive Brokers Group and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase and Interactive Brokers 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 Interactive Brokers Group 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 Interactive Brokers i.e., Interactive Brokers and NetEase go up and down completely randomly.

Pair Corralation between Interactive Brokers and NetEase

Given the investment horizon of 90 days Interactive Brokers Group is expected to generate 0.65 times more return on investment than NetEase. However, Interactive Brokers Group is 1.54 times less risky than NetEase. It trades about 0.29 of its potential returns per unit of risk. NetEase is currently generating about 0.13 per unit of risk. If you would invest  12,344  in Interactive Brokers Group on September 12, 2024 and sell it today you would earn a total of  5,564  from holding Interactive Brokers Group or generate 45.07% return on investment over 90 days.

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

Interactive Brokers Group  vs.  NetEase

Interactive Brokers

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Interactive Brokers Group are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward-looking signals, Interactive Brokers reported solid returns over the last few months and may actually be approaching a breakup point.

NetEase

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal technical and fundamental indicators, NetEase unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Interactive Brokers and NetEase

The main advantage of trading using opposite Interactive Brokers and NetEase positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Interactive Brokers 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 Interactive Brokers Group 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.