Correlation Between NEXT Plc and Gap
Can any of the company-specific risk be diversified away by investing in both NEXT Plc and Gap 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 NEXT Plc and Gap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NEXT plc and The Gap, you can compare the effects of market volatilities on NEXT Plc and Gap 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 NEXT Plc with a short position of Gap. Check out your portfolio center. Please also check ongoing floating volatility patterns of NEXT Plc and Gap.
Diversification Opportunities for NEXT Plc and Gap
Very good diversification
The 3 months correlation between NEXT and Gap is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding NEXT plc and The Gap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gap and NEXT Plc 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 NEXT plc are associated (or correlated) with Gap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gap has no effect on the direction of NEXT Plc i.e., NEXT Plc and Gap go up and down completely randomly.
Pair Corralation between NEXT Plc and Gap
Assuming the 90 days horizon NEXT Plc is expected to generate 1.5 times less return on investment than Gap. But when comparing it to its historical volatility, NEXT plc is 2.2 times less risky than Gap. It trades about 0.08 of its potential returns per unit of risk. The Gap is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1,238 in The Gap on August 30, 2024 and sell it today you would earn a total of 1,090 from holding The Gap or generate 88.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
NEXT plc vs. The Gap
Performance |
| Timeline |
| NEXT plc |
| Gap |
NEXT Plc and Gap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NEXT Plc and Gap
The main advantage of trading using opposite NEXT Plc and Gap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NEXT Plc position performs unexpectedly, Gap 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 Gap will offset losses from the drop in Gap's long position.| NEXT Plc vs. Event Hospitality and | NEXT Plc vs. THAI BEVERAGE | NEXT Plc vs. Bausch Health Companies | NEXT Plc vs. NISSIN FOODS HLDGS |
| Gap vs. Magnachip Semiconductor | Gap vs. Rogers Communications | Gap vs. Tower Semiconductor | Gap vs. Entravision Communications |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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