Correlation Between NFI and Cineplex
Can any of the company-specific risk be diversified away by investing in both NFI and Cineplex 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 NFI and Cineplex into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NFI Group and Cineplex, you can compare the effects of market volatilities on NFI and Cineplex 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 NFI with a short position of Cineplex. Check out your portfolio center. Please also check ongoing floating volatility patterns of NFI and Cineplex.
Diversification Opportunities for NFI and Cineplex
Very poor diversification
The 3 months correlation between NFI and Cineplex is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding NFI Group and Cineplex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cineplex and NFI 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 NFI Group are associated (or correlated) with Cineplex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cineplex has no effect on the direction of NFI i.e., NFI and Cineplex go up and down completely randomly.
Pair Corralation between NFI and Cineplex
Assuming the 90 days trading horizon NFI Group is expected to under-perform the Cineplex. But the stock apears to be less risky and, when comparing its historical volatility, NFI Group is 1.12 times less risky than Cineplex. The stock trades about -0.33 of its potential returns per unit of risk. The Cineplex is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,037 in Cineplex on August 29, 2024 and sell it today you would earn a total of 9.00 from holding Cineplex or generate 0.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
NFI Group vs. Cineplex
Performance |
| Timeline |
| NFI Group |
| Cineplex |
NFI and Cineplex Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NFI and Cineplex
The main advantage of trading using opposite NFI and Cineplex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NFI position performs unexpectedly, Cineplex 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 Cineplex will offset losses from the drop in Cineplex's long position.The idea behind NFI Group and Cineplex 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.| Cineplex vs. Air Canada | Cineplex vs. BlackBerry | Cineplex vs. Suncor Energy | Cineplex vs. Drone Delivery Canada |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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