Correlation Between Old Republic and NetEase

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

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

Diversification Opportunities for Old Republic and NetEase

0.03

Correlation Coefficient

Old Republic  NetEase

Significant diversification

The 3 months correlation between Old and NetEase is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Old Republic International and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase and Old Republic 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 Old Republic International 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 Old Republic i.e., Old Republic and NetEase go up and down completely randomly.

Pair Corralation between Old Republic and NetEase

Considering the 90-day investment horizon Old Republic International is expected to under-perform the NetEase. But the stock apears to be less risky and, when comparing its historical volatility, Old Republic International is 1.98 times less risky than NetEase. The stock trades about -0.19 of its potential returns per unit of risk. The NetEase is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  8,578  in NetEase on September 27, 2024 and sell it today you would earn a total of  644.00  from holding NetEase or generate 7.51% return on investment over 90 days.

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

Old Republic International  vs.  NetEase

Old Republic Interna

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Old Republic International are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Old Republic is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

NetEase

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NetEase has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, NetEase is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Old Republic and NetEase

The main advantage of trading using opposite Old Republic and NetEase positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Old Republic 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 Old Republic International 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.