Correlation Between NetEase and Titan Machinery

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

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

Diversification Opportunities for NetEase and Titan Machinery

0.17

Correlation Coefficient

NetEase  Titan Machinery

Average diversification

The 3 months correlation between NetEase and Titan is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding NetEase and Titan Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Titan Machinery 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 Titan Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Titan Machinery has no effect on the direction of NetEase i.e., NetEase and Titan Machinery go up and down completely randomly.

Pair Corralation between NetEase and Titan Machinery

Given the investment horizon of 90 days NetEase is expected to generate 0.94 times more return on investment than Titan Machinery. However, NetEase is 1.06 times less risky than Titan Machinery. It trades about 0.01 of its potential returns per unit of risk. Titan Machinery is currently generating about -0.05 per unit of risk. If you would invest  9,690  in NetEase on September 12, 2024 and sell it today you would lose (42.00) from holding NetEase or give up 0.43% of portfolio value over 90 days.

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

NetEase  vs.  Titan Machinery

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.

Titan Machinery

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Titan Machinery are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Titan Machinery displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NetEase and Titan Machinery

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

The idea behind NetEase and Titan Machinery 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.

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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.