Correlation Between NN and Global Tech

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Can any of the company-specific risk be diversified away by investing in both NN and Global Tech 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 NN and Global Tech into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NN Inc and Global Tech Industries, you can compare the effects of market volatilities on NN and Global Tech 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 NN with a short position of Global Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of NN and Global Tech.

Diversification Opportunities for NN and Global Tech

-0.4
  Correlation Coefficient

Very good diversification

The 3 months correlation between NN and Global is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding NN Inc and Global Tech Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Tech Industries and NN 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 NN Inc are associated (or correlated) with Global Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Tech Industries has no effect on the direction of NN i.e., NN and Global Tech go up and down completely randomly.

Pair Corralation between NN and Global Tech

Given the investment horizon of 90 days NN is expected to generate 9.3 times less return on investment than Global Tech. But when comparing it to its historical volatility, NN Inc is 18.14 times less risky than Global Tech. It trades about 0.23 of its potential returns per unit of risk. Global Tech Industries is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3.00  in Global Tech Industries on September 13, 2024 and sell it today you would lose (1.44) from holding Global Tech Industries or give up 48.0% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

NN Inc  vs.  Global Tech Industries

 Performance 
       Timeline  
NN Inc 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in NN Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental drivers, NN reported solid returns over the last few months and may actually be approaching a breakup point.
Global Tech Industries 

Risk-Adjusted Performance

18 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Global Tech Industries are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, Global Tech demonstrated solid returns over the last few months and may actually be approaching a breakup point.

NN and Global Tech Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NN and Global Tech

The main advantage of trading using opposite NN and Global Tech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NN position performs unexpectedly, Global Tech 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 Global Tech will offset losses from the drop in Global Tech's long position.
The idea behind NN Inc and Global Tech Industries 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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