Correlation Between Apple and NOW
Can any of the company-specific risk be diversified away by investing in both Apple and NOW 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 Apple and NOW into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Apple Inc and NOW Inc, you can compare the effects of market volatilities on Apple and NOW 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 Apple with a short position of NOW. Check out your portfolio center. Please also check ongoing floating volatility patterns of Apple and NOW.
Diversification Opportunities for Apple and NOW
Poor diversification
The 3 months correlation between Apple and NOW is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and NOW Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NOW Inc and Apple 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 Apple Inc are associated (or correlated) with NOW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NOW Inc has no effect on the direction of Apple i.e., Apple and NOW go up and down completely randomly.
Pair Corralation between Apple and NOW
Assuming the 90 days trading horizon Apple is expected to generate 11.85 times less return on investment than NOW. But when comparing it to its historical volatility, Apple Inc is 2.14 times less risky than NOW. It trades about 0.09 of its potential returns per unit of risk. NOW Inc is currently generating about 0.51 of returns per unit of risk over similar time horizon. If you would invest 1,040 in NOW Inc on August 30, 2024 and sell it today you would earn a total of 390.00 from holding NOW Inc or generate 37.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Apple Inc vs. NOW Inc
Performance |
| Timeline |
| Apple Inc |
| NOW Inc |
Apple and NOW Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Apple and NOW
The main advantage of trading using opposite Apple and NOW positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple position performs unexpectedly, NOW 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 NOW will offset losses from the drop in NOW's long position.| Apple vs. CECO ENVIRONMENTAL | Apple vs. NIPPON STEEL SPADR | Apple vs. QURATE RETAIL INC | Apple vs. Boiron SA |
| NOW vs. National Storage Affiliates | NOW vs. Jacquet Metal Service | NOW vs. INFORMATION SVC GRP | NOW vs. ADRIATIC METALS LS 013355 |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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