Correlation Between NSTAR and Guangdong Investment

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Can any of the company-specific risk be diversified away by investing in both NSTAR and Guangdong Investment 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 NSTAR and Guangdong Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NSTAR Electric Co and Guangdong Investment Limited, you can compare the effects of market volatilities on NSTAR and Guangdong Investment 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 NSTAR with a short position of Guangdong Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of NSTAR and Guangdong Investment.

Diversification Opportunities for NSTAR and Guangdong Investment

0.48
  Correlation Coefficient

Very weak diversification

The 3 months correlation between NSTAR and Guangdong is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding NSTAR Electric Co and Guangdong Investment Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Investment and NSTAR 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 NSTAR Electric Co are associated (or correlated) with Guangdong Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Investment has no effect on the direction of NSTAR i.e., NSTAR and Guangdong Investment go up and down completely randomly.

Pair Corralation between NSTAR and Guangdong Investment

Assuming the 90 days trading horizon NSTAR Electric Co is expected to under-perform the Guangdong Investment. But the bond apears to be less risky and, when comparing its historical volatility, NSTAR Electric Co is 10.27 times less risky than Guangdong Investment. The bond trades about -0.01 of its potential returns per unit of risk. The Guangdong Investment Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  72.00  in Guangdong Investment Limited on September 12, 2024 and sell it today you would lose (11.00) from holding Guangdong Investment Limited or give up 15.28% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy76.71%
ValuesDaily Returns

NSTAR Electric Co  vs.  Guangdong Investment Limited

 Performance 
       Timeline  
NSTAR Electric 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days NSTAR Electric Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for NSTAR Electric Co investors.
Guangdong Investment 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Investment Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Guangdong Investment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

NSTAR and Guangdong Investment Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NSTAR and Guangdong Investment

The main advantage of trading using opposite NSTAR and Guangdong Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NSTAR position performs unexpectedly, Guangdong Investment 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 Guangdong Investment will offset losses from the drop in Guangdong Investment's long position.
The idea behind NSTAR Electric Co and Guangdong Investment Limited 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 Global Correlations module to find global opportunities by holding instruments from different markets.

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