Correlation Between SLS and NAV
Can any of the company-specific risk be diversified away by investing in both SLS and NAV 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 SLS and NAV into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SLS and NAV, you can compare the effects of market volatilities on SLS and NAV 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 SLS with a short position of NAV. Check out your portfolio center. Please also check ongoing floating volatility patterns of SLS and NAV.
Diversification Opportunities for SLS and NAV
Excellent diversification
The 3 months correlation between SLS and NAV is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding SLS and NAV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NAV and SLS 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 SLS are associated (or correlated) with NAV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NAV has no effect on the direction of SLS i.e., SLS and NAV go up and down completely randomly.
Pair Corralation between SLS and NAV
Assuming the 90 days trading horizon SLS is expected to generate 0.84 times more return on investment than NAV. However, SLS is 1.2 times less risky than NAV. It trades about 0.26 of its potential returns per unit of risk. NAV is currently generating about -0.12 per unit of risk. If you would invest 719.00 in SLS on August 31, 2024 and sell it today you would earn a total of 487.00 from holding SLS or generate 67.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
SLS vs. NAV
Performance |
| Timeline |
| SLS |
| NAV |
SLS and NAV Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SLS and NAV
The main advantage of trading using opposite SLS and NAV positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SLS position performs unexpectedly, NAV 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 NAV will offset losses from the drop in NAV's long position.The idea behind SLS and NAV 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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