Correlation Between Sea and The9

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Can any of the company-specific risk be diversified away by investing in both Sea and The9 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 Sea and The9 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sea and The9 Ltd ADR, you can compare the effects of market volatilities on Sea and The9 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 Sea with a short position of The9. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sea and The9.

Diversification Opportunities for Sea and The9

0.67
  Correlation Coefficient

Poor diversification

The 3 months correlation between Sea and The9 is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Sea and The9 Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The9 Ltd ADR and Sea 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 Sea are associated (or correlated) with The9. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The9 Ltd ADR has no effect on the direction of Sea i.e., Sea and The9 go up and down completely randomly.

Pair Corralation between Sea and The9

Allowing for the 90-day total investment horizon Sea is expected to generate 1.76 times more return on investment than The9. However, Sea is 1.76 times more volatile than The9 Ltd ADR. It trades about 0.18 of its potential returns per unit of risk. The9 Ltd ADR is currently generating about -0.03 per unit of risk. If you would invest  4,584  in Sea on September 4, 2022 and sell it today you would earn a total of  1,554  from holding Sea or generate 33.9% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.45%
ValuesDaily Returns

Sea  vs.  The9 Ltd ADR

 Performance (%) 
       Timeline  
Sea 
Sea Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

Sea Price Channel

The9 Ltd ADR 
The9 Performance
0 of 100
Over the last 90 days The9 Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2023. The current disturbance may also be a sign of long term up-swing for the company investors.

The9 Price Channel

Sea and The9 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Sea and The9

The main advantage of trading using opposite Sea and The9 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sea position performs unexpectedly, The9 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 The9 will offset losses from the drop in The9's long position.
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The idea behind Sea and The9 Ltd ADR 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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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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