Correlation Between NetEase and Procter Gamble

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Can any of the company-specific risk be diversified away by investing in both NetEase and Procter Gamble 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 Procter Gamble into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NetEase and The Procter Gamble, you can compare the effects of market volatilities on NetEase and Procter Gamble 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 Procter Gamble. Check out your portfolio center. Please also check ongoing floating volatility patterns of NetEase and Procter Gamble.

Diversification Opportunities for NetEase and Procter Gamble

-0.3
  Correlation Coefficient

Very good diversification

The 3 months correlation between NetEase and Procter is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding NetEase and The Procter Gamble in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procter Gamble 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 Procter Gamble. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Procter Gamble has no effect on the direction of NetEase i.e., NetEase and Procter Gamble go up and down completely randomly.

Pair Corralation between NetEase and Procter Gamble

Assuming the 90 days trading horizon NetEase is expected to generate 1.75 times more return on investment than Procter Gamble. However, NetEase is 1.75 times more volatile than The Procter Gamble. It trades about 0.17 of its potential returns per unit of risk. The Procter Gamble is currently generating about -0.01 per unit of risk. If you would invest  5,967  in NetEase on April 24, 2025 and sell it today you would earn a total of  1,684  from holding NetEase or generate 28.22% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy98.41%
ValuesDaily Returns

NetEase  vs.  The Procter Gamble

 Performance 
       Timeline  
NetEase 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NetEase sustained solid returns over the last few months and may actually be approaching a breakup point.
Procter Gamble 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days The Procter Gamble has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Procter Gamble is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

NetEase and Procter Gamble Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NetEase and Procter Gamble

The main advantage of trading using opposite NetEase and Procter Gamble positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NetEase position performs unexpectedly, Procter Gamble 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 Procter Gamble will offset losses from the drop in Procter Gamble's long position.
The idea behind NetEase and The Procter Gamble 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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