Correlation Between Wave Electronics and Next Entertainment

Can any of the company-specific risk be diversified away by investing in both Wave Electronics and Next Entertainment 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 Wave Electronics and Next Entertainment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Wave Electronics Co and Next Entertainment World, you can compare the effects of market volatilities on Wave Electronics and Next Entertainment 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 Wave Electronics with a short position of Next Entertainment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wave Electronics and Next Entertainment.

Diversification Opportunities for Wave Electronics and Next Entertainment

0.58

Correlation Coefficient

Wave Electronics  Next Entertainment

Very weak diversification

The 3 months correlation between Wave and Next is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Wave Electronics Co and Next Entertainment World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Next Entertainment World and Wave Electronics 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 Wave Electronics Co are associated (or correlated) with Next Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Next Entertainment World has no effect on the direction of Wave Electronics i.e., Wave Electronics and Next Entertainment go up and down completely randomly.

Pair Corralation between Wave Electronics and Next Entertainment

Assuming the 90 days trading horizon Wave Electronics Co is expected to under-perform the Next Entertainment. But the stock apears to be less risky and, when comparing its historical volatility, Wave Electronics Co is 1.11 times less risky than Next Entertainment. The stock trades about -0.1 of its potential returns per unit of risk. The Next Entertainment World is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  225,000  in Next Entertainment World on September 20, 2024 and sell it today you would earn a total of  9,000  from holding Next Entertainment World or generate 4.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Wave Electronics Co  vs.  Next Entertainment World

Wave Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wave Electronics Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Next Entertainment World

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Next Entertainment World are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Next Entertainment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Wave Electronics and Next Entertainment

The main advantage of trading using opposite Wave Electronics and Next Entertainment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wave Electronics position performs unexpectedly, Next Entertainment 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 Next Entertainment will offset losses from the drop in Next Entertainment's long position.

The idea behind Wave Electronics Co and Next Entertainment World 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.

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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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.