Correlation Between NLG and SAFEX
Can any of the company-specific risk be diversified away by investing in both NLG and SAFEX 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 NLG and SAFEX into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NLG and SAFEX, you can compare the effects of market volatilities on NLG and SAFEX 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 NLG with a short position of SAFEX. Check out your portfolio center. Please also check ongoing floating volatility patterns of NLG and SAFEX.
Diversification Opportunities for NLG and SAFEX
No risk reduction
The 3 months correlation between NLG and SAFEX is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding NLG and SAFEX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAFEX and NLG 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 NLG are associated (or correlated) with SAFEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAFEX has no effect on the direction of NLG i.e., NLG and SAFEX go up and down completely randomly.
Pair Corralation between NLG and SAFEX
If you would invest 0.54 in SAFEX on September 2, 2024 and sell it today you would earn a total of 0.00 from holding SAFEX or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
NLG vs. SAFEX
Performance |
| Timeline |
| NLG |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| SAFEX |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
NLG and SAFEX Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NLG and SAFEX
The main advantage of trading using opposite NLG and SAFEX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NLG position performs unexpectedly, SAFEX 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 SAFEX will offset losses from the drop in SAFEX's long position.The idea behind NLG and SAFEX 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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