Correlation Between NBTM New and Aofu Environmental

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

By analyzing existing cross correlation between NBTM New Materials and Aofu Environmental Technology, you can compare the effects of market volatilities on NBTM New and Aofu Environmental 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 NBTM New with a short position of Aofu Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of NBTM New and Aofu Environmental.

Diversification Opportunities for NBTM New and Aofu Environmental

0.65

Correlation Coefficient

NBTM New  Aofu Environmental

Poor diversification

The 3 months correlation between NBTM and Aofu is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding NBTM New Materials and Aofu Environmental Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aofu Environmental and NBTM New 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 NBTM New Materials are associated (or correlated) with Aofu Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aofu Environmental has no effect on the direction of NBTM New i.e., NBTM New and Aofu Environmental go up and down completely randomly.

Pair Corralation between NBTM New and Aofu Environmental

Assuming the 90 days trading horizon NBTM New is expected to generate 1.64 times less return on investment than Aofu Environmental. But when comparing it to its historical volatility, NBTM New Materials is 1.12 times less risky than Aofu Environmental. It trades about 0.09 of its potential returns per unit of risk. Aofu Environmental Technology is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  838.00  in Aofu Environmental Technology on September 26, 2024 and sell it today you would earn a total of  248.00  from holding Aofu Environmental Technology or generate 29.59% return on investment over 90 days.

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

NBTM New Materials  vs.  Aofu Environmental Technology

NBTM New Materials

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NBTM New Materials are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NBTM New sustained solid returns over the last few months and may actually be approaching a breakup point.

Aofu Environmental

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aofu Environmental Technology are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Aofu Environmental sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NBTM New and Aofu Environmental

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

The idea behind NBTM New Materials and Aofu Environmental Technology 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.