Correlation Between Basic Materials and N1RG34
Can any of the company-specific risk be diversified away by investing in both Basic Materials and N1RG34 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 Basic Materials and N1RG34 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials and N1RG34, you can compare the effects of market volatilities on Basic Materials and N1RG34 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 Basic Materials with a short position of N1RG34. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and N1RG34.
Diversification Opportunities for Basic Materials and N1RG34
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Basic and N1RG34 is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and N1RG34 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on N1RG34 and Basic Materials 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 Basic Materials are associated (or correlated) with N1RG34. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of N1RG34 has no effect on the direction of Basic Materials i.e., Basic Materials and N1RG34 go up and down completely randomly.
Pair Corralation between Basic Materials and N1RG34
Assuming the 90 days trading horizon Basic Materials is expected to under-perform the N1RG34. But the index apears to be less risky and, when comparing its historical volatility, Basic Materials is 2.12 times less risky than N1RG34. The index trades about 0.0 of its potential returns per unit of risk. The N1RG34 is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 54,000 in N1RG34 on September 20, 2024 and sell it today you would earn a total of 2,119 from holding N1RG34 or generate 3.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Basic Materials vs. N1RG34
Performance |
| Timeline |
Basic Materials and N1RG34 Volatility Contrast
Predicted Return Density |
| Returns |
Basic Materials
Pair trading matchups for Basic Materials
N1RG34
Pair trading matchups for N1RG34
Pair Trading with Basic Materials and N1RG34
The main advantage of trading using opposite Basic Materials and N1RG34 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials position performs unexpectedly, N1RG34 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 N1RG34 will offset losses from the drop in N1RG34's long position.| Basic Materials vs. Multilaser Industrial SA | Basic Materials vs. Marvell Technology | Basic Materials vs. Micron Technology | Basic Materials vs. Waste Management |
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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