Correlation Between BOX and NMC

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

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

Diversification Opportunities for BOX and NMC

0.09

Correlation Coefficient

BOX  NMC

Significant diversification

The 3 months correlation between BOX and NMC is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding BOX and NMC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMC and BOX 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 BOX are associated (or correlated) with NMC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NMC has no effect on the direction of BOX i.e., BOX and NMC go up and down completely randomly.

Pair Corralation between BOX and NMC

Assuming the 90 days trading horizon BOX is expected to generate 9.34 times more return on investment than NMC. However, BOX is 9.34 times more volatile than NMC. It trades about 0.09 of its potential returns per unit of risk. NMC is currently generating about 0.27 per unit of risk. If you would invest  0.02  in BOX on September 2, 2024 and sell it today you would earn a total of  0.00  from holding BOX or generate 12.21% return on investment over 90 days.

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

BOX  vs.  NMC

BOX

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BOX are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, BOX exhibited solid returns over the last few months and may actually be approaching a breakup point.

NMC

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NMC are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, NMC exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BOX and NMC

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

The idea behind BOX and NMC 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.