Correlation Between Nelly Group and BHG Group

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

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

Diversification Opportunities for Nelly Group and BHG Group

0.8

Correlation Coefficient

Nelly Group  BHG Group

Very poor diversification

The 3 months correlation between Nelly and BHG is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Nelly Group AB and BHG Group AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BHG Group AB and Nelly Group 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 Nelly Group AB are associated (or correlated) with BHG Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BHG Group AB has no effect on the direction of Nelly Group i.e., Nelly Group and BHG Group go up and down completely randomly.

Pair Corralation between Nelly Group and BHG Group

Assuming the 90 days trading horizon Nelly Group is expected to generate 2.61 times less return on investment than BHG Group. But when comparing it to its historical volatility, Nelly Group AB is 1.37 times less risky than BHG Group. It trades about 0.07 of its potential returns per unit of risk. BHG Group AB is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,491  in BHG Group AB on September 5, 2024 and sell it today you would earn a total of  521.00  from holding BHG Group AB or generate 34.94% return on investment over 90 days.

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

Nelly Group AB  vs.  BHG Group AB

Nelly Group AB

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Nelly Group AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively weak basic indicators, Nelly Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

BHG Group AB

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BHG Group AB are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, BHG Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nelly Group and BHG Group

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

The idea behind Nelly Group AB and BHG Group AB 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.