Correlation Between STEPN and NKN

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

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

Diversification Opportunities for STEPN and NKN

0.96

Correlation Coefficient

STEPN  NKN

Almost no diversification

The 3 months correlation between STEPN and NKN is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding STEPN and NKN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NKN and STEPN 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 STEPN are associated (or correlated) with NKN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NKN has no effect on the direction of STEPN i.e., STEPN and NKN go up and down completely randomly.

Pair Corralation between STEPN and NKN

Assuming the 90 days trading horizon STEPN is expected to generate 1.55 times more return on investment than NKN. However, STEPN is 1.55 times more volatile than NKN. It trades about 0.18 of its potential returns per unit of risk. NKN is currently generating about 0.18 per unit of risk. If you would invest  11.00  in STEPN on September 1, 2024 and sell it today you would earn a total of  12.00  from holding STEPN or generate 109.09% return on investment over 90 days.

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

STEPN  vs.  NKN

STEPN

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in STEPN are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, STEPN exhibited solid returns over the last few months and may actually be approaching a breakup point.

NKN

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NKN are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, NKN exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STEPN and NKN

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

The idea behind STEPN and NKN 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.