Correlation Between Next PLC and Aeorema Communications
Can any of the company-specific risk be diversified away by investing in both Next PLC and Aeorema Communications 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 Aeorema Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Next PLC and Aeorema Communications Plc, you can compare the effects of market volatilities on Next PLC and Aeorema Communications 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 Aeorema Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Next PLC and Aeorema Communications.
Diversification Opportunities for Next PLC and Aeorema Communications
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Next and Aeorema is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Next PLC and Aeorema Communications Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aeorema Communications 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 Aeorema Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aeorema Communications has no effect on the direction of Next PLC i.e., Next PLC and Aeorema Communications go up and down completely randomly.
Pair Corralation between Next PLC and Aeorema Communications
Assuming the 90 days trading horizon Next PLC is expected to generate 1.05 times more return on investment than Aeorema Communications. However, Next PLC is 1.05 times more volatile than Aeorema Communications Plc. It trades about -0.03 of its potential returns per unit of risk. Aeorema Communications Plc is currently generating about -0.09 per unit of risk. If you would invest 1,014,000 in Next PLC on August 29, 2024 and sell it today you would lose (34,400) from holding Next PLC or give up 3.39% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 98.46% |
| Values | Daily Returns |
Next PLC vs. Aeorema Communications Plc
Performance |
| Timeline |
| Next PLC |
| Aeorema Communications |
Next PLC and Aeorema Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Next PLC and Aeorema Communications
The main advantage of trading using opposite Next PLC and Aeorema Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Next PLC position performs unexpectedly, Aeorema Communications 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 Aeorema Communications will offset losses from the drop in Aeorema Communications' long position.| Next PLC vs. Melia Hotels | Next PLC vs. Regions Financial Corp | Next PLC vs. OneSavings Bank PLC | Next PLC vs. MT Bank Corp |
| Aeorema Communications vs. Walmart | Aeorema Communications vs. BYD Co | Aeorema Communications vs. Volkswagen AG | Aeorema Communications vs. Volkswagen AG Non Vtg |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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