Correlation Between New Nordic and Leading Edge
Can any of the company-specific risk be diversified away by investing in both New Nordic and Leading Edge 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 New Nordic and Leading Edge into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New Nordic Healthbrands and Leading Edge Materials, you can compare the effects of market volatilities on New Nordic and Leading Edge 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 New Nordic with a short position of Leading Edge. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Nordic and Leading Edge.
Diversification Opportunities for New Nordic and Leading Edge
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between New and Leading is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding New Nordic Healthbrands and Leading Edge Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leading Edge Materials and New Nordic 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 New Nordic Healthbrands are associated (or correlated) with Leading Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leading Edge Materials has no effect on the direction of New Nordic i.e., New Nordic and Leading Edge go up and down completely randomly.
Pair Corralation between New Nordic and Leading Edge
Assuming the 90 days trading horizon New Nordic Healthbrands is expected to under-perform the Leading Edge. But the stock apears to be less risky and, when comparing its historical volatility, New Nordic Healthbrands is 1.37 times less risky than Leading Edge. The stock trades about -0.02 of its potential returns per unit of risk. The Leading Edge Materials is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 127.00 in Leading Edge Materials on September 12, 2024 and sell it today you would lose (50.00) from holding Leading Edge Materials or give up 39.37% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
New Nordic Healthbrands vs. Leading Edge Materials
Performance |
| Timeline |
| New Nordic Healthbrands |
| Leading Edge Materials |
New Nordic and Leading Edge Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New Nordic and Leading Edge
The main advantage of trading using opposite New Nordic and Leading Edge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Nordic position performs unexpectedly, Leading Edge 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 Leading Edge will offset losses from the drop in Leading Edge's long position.The idea behind New Nordic Healthbrands and Leading Edge Materials 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.| Leading Edge vs. Boliden AB | Leading Edge vs. Filo Mining Corp | Leading Edge vs. KABE Group AB | Leading Edge vs. IAR Systems Group |
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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
Other Complementary Tools
| Bollinger Bands Use Bollinger Bands indicator to analyze target price for a given investing horizon | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume | |
| Pair Correlation Compare performance and examine fundamental relationship between any two equity instruments | |
| Idea Analyzer Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas | |
| Portfolio Diagnostics Use generated alerts and portfolio events aggregator to diagnose current holdings |