Correlation Between Nigerian Stock and NIGERIA ENERGY

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Apply Can any of the company-specific risk be diversified away by investing in both Nigerian Stock and NIGERIA ENERGY 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 Nigerian Stock and NIGERIA ENERGY into the same portfolio, which is an essential part of the fundamental portfolio management process.

Diversification Opportunities for Nigerian Stock and NIGERIA ENERGY

Pair Corralation between Nigerian Stock and NIGERIA ENERGY

Nigerian Stock Exchange  vs.  NIGERIA ENERGY SECTOR

Pair Trading with Nigerian Stock and NIGERIA ENERGY

The main advantage of trading using opposite Nigerian Stock and NIGERIA ENERGY positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nigerian Stock position performs unexpectedly, NIGERIA ENERGY 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 NIGERIA ENERGY will offset losses from the drop in NIGERIA ENERGY's long position.The idea behind Nigerian Stock Exchange and NIGERIA ENERGY SECTOR 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.

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