Correlation Between SAFEX and NLG
Can any of the company-specific risk be diversified away by investing in both SAFEX and NLG 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 SAFEX and NLG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SAFEX and NLG, you can compare the effects of market volatilities on SAFEX and NLG 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 SAFEX with a short position of NLG. Check out your portfolio center. Please also check ongoing floating volatility patterns of SAFEX and NLG.
Diversification Opportunities for SAFEX and NLG
No risk reduction
The 3 months correlation between SAFEX and NLG is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding SAFEX and NLG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NLG and SAFEX 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 SAFEX are associated (or correlated) with NLG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NLG has no effect on the direction of SAFEX i.e., SAFEX and NLG go up and down completely randomly.
Pair Corralation between SAFEX and NLG
If you would invest 0.51 in NLG on August 26, 2024 and sell it today you would earn a total of 0.00 from holding NLG or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
SAFEX vs. NLG
Performance |
| Timeline |
| SAFEX |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| NLG |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
SAFEX and NLG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SAFEX and NLG
The main advantage of trading using opposite SAFEX and NLG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SAFEX position performs unexpectedly, NLG 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 NLG will offset losses from the drop in NLG's long position.The idea behind SAFEX and NLG 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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