Correlation Between Basic Materials and NEXG11
Can any of the company-specific risk be diversified away by investing in both Basic Materials and NEXG11 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 NEXG11 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials and NEXG11, you can compare the effects of market volatilities on Basic Materials and NEXG11 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 NEXG11. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and NEXG11.
Diversification Opportunities for Basic Materials and NEXG11
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Basic and NEXG11 is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and NEXG11 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEXG11 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 NEXG11. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEXG11 has no effect on the direction of Basic Materials i.e., Basic Materials and NEXG11 go up and down completely randomly.
Pair Corralation between Basic Materials and NEXG11
Assuming the 90 days trading horizon Basic Materials is expected to under-perform the NEXG11. In addition to that, Basic Materials is 2.16 times more volatile than NEXG11. It trades about 0.0 of its total potential returns per unit of risk. NEXG11 is currently generating about 0.55 per unit of volatility. If you would invest 11,744 in NEXG11 on September 19, 2024 and sell it today you would earn a total of 856.00 from holding NEXG11 or generate 7.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Basic Materials vs. NEXG11
Performance |
| Timeline |
Basic Materials and NEXG11 Volatility Contrast
Predicted Return Density |
| Returns |
Basic Materials
Pair trading matchups for Basic Materials
NEXG11
Pair trading matchups for NEXG11
Pair Trading with Basic Materials and NEXG11
The main advantage of trading using opposite Basic Materials and NEXG11 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials position performs unexpectedly, NEXG11 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 NEXG11 will offset losses from the drop in NEXG11's long position.| Basic Materials vs. Multilaser Industrial SA | Basic Materials vs. Marvell Technology | Basic Materials vs. Micron Technology | Basic Materials vs. Waste Management |
| NEXG11 vs. Brpr Corporate Offices | NEXG11 vs. Telecomunicaes Brasileiras SA | NEXG11 vs. Multilaser Industrial SA | NEXG11 vs. Ross Stores |
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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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