Correlation Between Numinus Wellness and Big Pharma
Can any of the company-specific risk be diversified away by investing in both Numinus Wellness and Big Pharma 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 Numinus Wellness and Big Pharma into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Numinus Wellness and Big Pharma Split, you can compare the effects of market volatilities on Numinus Wellness and Big Pharma 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 Numinus Wellness with a short position of Big Pharma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Numinus Wellness and Big Pharma.
Diversification Opportunities for Numinus Wellness and Big Pharma
-0.45 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Numinus and Big is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Numinus Wellness and Big Pharma Split in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big Pharma Split and Numinus Wellness 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 Numinus Wellness are associated (or correlated) with Big Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big Pharma Split has no effect on the direction of Numinus Wellness i.e., Numinus Wellness and Big Pharma go up and down completely randomly.
Pair Corralation between Numinus Wellness and Big Pharma
Assuming the 90 days trading horizon Numinus Wellness is expected to generate 7.18 times more return on investment than Big Pharma. However, Numinus Wellness is 7.18 times more volatile than Big Pharma Split. It trades about 0.21 of its potential returns per unit of risk. Big Pharma Split is currently generating about -0.2 per unit of risk. If you would invest 4.00 in Numinus Wellness on October 25, 2024 and sell it today you would earn a total of 1.00 from holding Numinus Wellness or generate 25.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Numinus Wellness vs. Big Pharma Split
Performance |
| Timeline |
| Numinus Wellness |
| Big Pharma Split |
Numinus Wellness and Big Pharma Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Numinus Wellness and Big Pharma
The main advantage of trading using opposite Numinus Wellness and Big Pharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Numinus Wellness position performs unexpectedly, Big Pharma 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 Big Pharma will offset losses from the drop in Big Pharma's long position.The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Numinus Wellness as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Numinus Wellness' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Numinus Wellness' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Numinus Wellness.
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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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