Correlation Between FTC and NMC
Can any of the company-specific risk be diversified away by investing in both FTC and NMC 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 FTC and NMC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FTC and NMC, you can compare the effects of market volatilities on FTC and NMC 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 FTC with a short position of NMC. Check out your portfolio center. Please also check ongoing floating volatility patterns of FTC and NMC.
Diversification Opportunities for FTC and NMC
Very weak diversification
The 3 months correlation between FTC and NMC is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding FTC and NMC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMC and FTC 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 FTC are associated (or correlated) with NMC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NMC has no effect on the direction of FTC i.e., FTC and NMC go up and down completely randomly.
Pair Corralation between FTC and NMC
Assuming the 90 days trading horizon FTC is expected to under-perform the NMC. But the crypto coin apears to be less risky and, when comparing its historical volatility, FTC is 1.05 times less risky than NMC. The crypto coin trades about -0.19 of its potential returns per unit of risk. The NMC is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 101.00 in NMC on November 18, 2024 and sell it today you would earn a total of 1.00 from holding NMC or generate 0.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
FTC vs. NMC
Performance |
| Timeline |
| FTC |
| NMC |
FTC and NMC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FTC and NMC
The main advantage of trading using opposite FTC and NMC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FTC position performs unexpectedly, NMC 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 NMC will offset losses from the drop in NMC's long position.The idea behind FTC and NMC 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.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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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