Correlation Between North American and Neptune Digital

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

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

Diversification Opportunities for North American and Neptune Digital

0.82

Correlation Coefficient

North American  Neptune Digital

Very poor diversification

The 3 months correlation between North and Neptune is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and Neptune Digital Assets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neptune Digital Assets and North American 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 North American Financial are associated (or correlated) with Neptune Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neptune Digital Assets has no effect on the direction of North American i.e., North American and Neptune Digital go up and down completely randomly.

Pair Corralation between North American and Neptune Digital

Assuming the 90 days trading horizon North American is expected to generate 6.45 times less return on investment than Neptune Digital. But when comparing it to its historical volatility, North American Financial is 6.78 times less risky than Neptune Digital. It trades about 0.13 of its potential returns per unit of risk. Neptune Digital Assets is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  31.00  in Neptune Digital Assets on September 13, 2024 and sell it today you would earn a total of  83.00  from holding Neptune Digital Assets or generate 267.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.32%
Values	Daily Returns

North American Financial  vs.  Neptune Digital Assets

North American Financial

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in North American Financial are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, North American displayed solid returns over the last few months and may actually be approaching a breakup point.

Neptune Digital Assets

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Neptune Digital Assets are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Neptune Digital showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North American and Neptune Digital

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

The idea behind North American Financial and Neptune Digital Assets 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.