Correlation Between Alpha and NLIGHT

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

By analyzing existing cross correlation between Alpha and Omega and nLIGHT Inc, you can compare the effects of market volatilities on Alpha and NLIGHT 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 Alpha with a short position of NLIGHT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alpha and NLIGHT.

Diversification Opportunities for Alpha and NLIGHT

-0.14

Correlation Coefficient

Alpha  NLIGHT

Good diversification

The 3 months correlation between Alpha and NLIGHT is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Alpha and Omega and nLIGHT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on nLIGHT Inc and Alpha 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 Alpha and Omega are associated (or correlated) with NLIGHT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of nLIGHT Inc has no effect on the direction of Alpha i.e., Alpha and NLIGHT go up and down completely randomly.

Pair Corralation between Alpha and NLIGHT

Given the investment horizon of 90 days Alpha and Omega is expected to generate 1.2 times more return on investment than NLIGHT. However, Alpha is 1.2 times more volatile than nLIGHT Inc. It trades about 0.06 of its potential returns per unit of risk. nLIGHT Inc is currently generating about 0.02 per unit of risk. If you would invest  3,654  in Alpha and Omega on September 2, 2024 and sell it today you would earn a total of  493.00  from holding Alpha and Omega or generate 13.49% return on investment over 90 days.

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

Alpha and Omega  vs.  nLIGHT Inc

Alpha and Omega

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alpha and Omega are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Alpha disclosed solid returns over the last few months and may actually be approaching a breakup point.

nLIGHT Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in nLIGHT Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, NLIGHT may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Alpha and NLIGHT

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

The idea behind Alpha and Omega and nLIGHT Inc 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.