Correlation Between Renren and NetEase

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

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

Diversification Opportunities for Renren and NetEase

0.81

Correlation Coefficient

Renren  NetEase

Very poor diversification

The 3 months correlation between Renren and NetEase is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Renren Inc and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase and Renren 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 Renren Inc 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 Renren i.e., Renren and NetEase go up and down completely randomly.

Pair Corralation between Renren and NetEase

If you would invest  8,749  in NetEase on January 17, 2024 and sell it today you would earn a total of  468.00  from holding NetEase or generate 5.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	1.59%
Values	Daily Returns

Renren Inc  vs.  NetEase

Renren Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renren Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Renren is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

NetEase

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, NetEase may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Renren and NetEase

The main advantage of trading using opposite Renren and NetEase positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Renren 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 Renren Inc 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.