Correlation Between AMS Small and NSI NV

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

By analyzing existing cross correlation between AMS Small Cap and NSI NV, you can compare the effects of market volatilities on AMS Small and NSI NV 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 AMS Small with a short position of NSI NV. Check out your portfolio center. Please also check ongoing floating volatility patterns of AMS Small and NSI NV.

Diversification Opportunities for AMS Small and NSI NV

0.3

Correlation Coefficient

AMS Small  NSI NV

Weak diversification

The 3 months correlation between AMS and NSI is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding AMS Small Cap and NSI NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NSI NV and AMS Small 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 AMS Small Cap are associated (or correlated) with NSI NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NSI NV has no effect on the direction of AMS Small i.e., AMS Small and NSI NV go up and down completely randomly.

Pair Corralation between AMS Small and NSI NV

Assuming the 90 days trading horizon AMS Small Cap is expected to generate 1.26 times more return on investment than NSI NV. However, AMS Small is 1.26 times more volatile than NSI NV. It trades about 0.03 of its potential returns per unit of risk. NSI NV is currently generating about -0.15 per unit of risk. If you would invest  121,337  in AMS Small Cap on September 19, 2024 and sell it today you would earn a total of  2,078  from holding AMS Small Cap or generate 1.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

AMS Small Cap  vs.  NSI NV

Pair Trading with AMS Small and NSI NV

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

The idea behind AMS Small Cap and NSI NV 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.