Correlation Between NetEase and Philip Morris

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

By analyzing existing cross correlation between NetEase and Philip Morris International, you can compare the effects of market volatilities on NetEase and Philip Morris 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 Philip Morris. Check out your portfolio center. Please also check ongoing floating volatility patterns of NetEase and Philip Morris.

Diversification Opportunities for NetEase and Philip Morris

-0.27

Correlation Coefficient

NetEase  Philip Morris

Very good diversification

The 3 months correlation between NetEase and Philip is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding NetEase and Philip Morris International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Philip Morris Intern 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 Philip Morris. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Philip Morris Intern has no effect on the direction of NetEase i.e., NetEase and Philip Morris go up and down completely randomly.

Pair Corralation between NetEase and Philip Morris

Given the investment horizon of 90 days NetEase is expected to generate 1.64 times more return on investment than Philip Morris. However, NetEase is 1.64 times more volatile than Philip Morris International. It trades about 0.08 of its potential returns per unit of risk. Philip Morris International is currently generating about 0.07 per unit of risk. If you would invest  7,757  in NetEase on September 2, 2024 and sell it today you would earn a total of  991.00  from holding NetEase or generate 12.78% return on investment over 90 days.

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

NetEase  vs.  Philip Morris International

NetEase

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, NetEase unveiled solid returns over the last few months and may actually be approaching a breakup point.

Philip Morris Intern

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Philip Morris International are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent primary indicators, Philip Morris may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with NetEase and Philip Morris

The main advantage of trading using opposite NetEase and Philip Morris positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NetEase position performs unexpectedly, Philip Morris 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 Philip Morris will offset losses from the drop in Philip Morris' long position.

The idea behind NetEase and Philip Morris International 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.