Correlation Between NEXTDC and Teradata Corp

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

By analyzing existing cross correlation between NEXTDC LTD and Teradata Corp, you can compare the effects of market volatilities on NEXTDC and Teradata Corp 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 NEXTDC with a short position of Teradata Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of NEXTDC and Teradata Corp.

Diversification Opportunities for NEXTDC and Teradata Corp

-0.6

Correlation Coefficient

NEXTDC  Teradata Corp

Excellent diversification

The 3 months correlation between NEXTDC and Teradata is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding NEXTDC LTD and Teradata Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teradata Corp and NEXTDC 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 NEXTDC LTD are associated (or correlated) with Teradata Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teradata Corp has no effect on the direction of NEXTDC i.e., NEXTDC and Teradata Corp go up and down completely randomly.

Pair Corralation between NEXTDC and Teradata Corp

Assuming the 90 days horizon NEXTDC LTD is expected to generate 1.23 times more return on investment than Teradata Corp. However, NEXTDC is 1.23 times more volatile than Teradata Corp. It trades about -0.01 of its potential returns per unit of risk. Teradata Corp is currently generating about -0.03 per unit of risk. If you would invest  1,000.00  in NEXTDC LTD on September 24, 2024 and sell it today you would lose (115.00) from holding NEXTDC LTD or give up 11.5% of portfolio value over 90 days.

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

NEXTDC LTD  vs.  Teradata Corp

NEXTDC LTD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NEXTDC LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Teradata Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Teradata Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Teradata Corp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NEXTDC and Teradata Corp

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

The idea behind NEXTDC LTD and Teradata Corp 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.